Loan Modifications and Troubled Debt Restructurings

Banking & Financial Institutions COVID-19 Resources

On March 22, 2020, the federal financial institution regulators and the Conference of State Bank Supervisors published an interagency statement encouraging financial institutions to “work prudently with borrowers who are or may be unable to meet their payment obligations because of the effects” of COVID-19.  The interagency statement notes that the agencies will not criticize  institutions for working with borrowers and will not direct supervised institutions to automatically categorize all COVID-19 related loan modifications as troubled debt restructurings.  

In addition, Section 4013 of the CARES Act allows federally insured financial institutions and credit unions to elect to suspend requirements under U.S. Generally Accepted Accounting Principles for loan modifications related to COVID-19, and suspend any such determination regarding loans modified as a result of the effects of COVID-19. Under the new law, the federal financial institution regulators and the NCUA are required to defer to financial institutions to make any suspension, with the ability to make such an election beginning on March 1, 2020 and lasting no later than 60 days after the lifting of the COVID-19 public health emergency.