Fed, Other Regulators Ease Constraints for Virus-Hit Borrowers

The Federal Reserve and other U.S. agencies are giving banks more leeway to ease debt burdens for borrowers hit hard by coronavirus without triggering rules that can put problem loans in a regulatory penalty box.

Banks can modify loan terms, such as reducing interest rates or giving borrowers more time to pay their debt, without necessarily having to label those situations as “troubled debt restructurings,” or TDRs, according to a Sunday statement from theFed, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., and other regulators. The agencies raised an example of lenders giving borrowers six-month long modifications that could include payment deferrals, fee waivers and repayment extensions.

“Short-term modifications made on a good faith basis in response to COVID-19 to borrowers who were current prior to any relief are not TDRs,” the regulators said in the statement. Examiners from the banking agencies will be under orders to use judgment when reviewing modifications and not automatically downgrade the status of the loans.

“Agency examiners will not criticize prudent efforts to modify terms on existing loans for affected customers,” they said in the statement, which marks the latest in a series of moves meant to encourage the flow of credit and ease burdens on businesses and consumers as the pandemic spreads.

Regulators are also working on relaxing accounting rules that affect banks, and may seek toadjust other industry limits.

Also Sunday, the OCC authorized the national banks it supervises to lengthen the maturity limits of short-term investment funds, or STIFs. Effective immediately, such funds struggling with the market impacts of coronavirus can extend their maturity limits on a temporary basis, the agency said.

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