Alert July 20, 2010

Banking Agencies Issue Statement to Assist Financial Institutions and Their Customers Affected by Gulf of Mexico Oil Spill

The FRB, FDIC, OCC, OTS, NCUA and the Conference of State Bank Supervisors (the “Agencies”) jointly issued a statement (the “Statement”) to assist financial institutions (“FIs”) and their customers affected by the explosion and oil spill related to the Deepwater Horizon Mobile Offshore Drilling Unit in the Gulf of Mexico (the “Gulf Oil Spill”).

The Statement encourages FIs to assist their borrowers affected by the Gulf Oil Spill.  Efforts taken by FIs to assist such customers, if taken in a reasonable and prudent manner, will be considered “safe and sound” by the Agencies.  The statement identifies the following alternatives that FIs may consider using in assisting customers affected by the Gulf Oil Spill:

  1. “Temporarily waiving late payment charges, ATM fees, and penalties for early withdrawal of savings;
  2. Expediting lending decisions when possible, consistent with safety and soundness;
  3. Extending or restructuring borrower debt obligations in anticipation of the receipt of funds based on claims the borrower may have filed with BP p.l.c.; and
  4. Easing credit terms or fees for loans to certain borrowers, consistent with prudent banking practice.”

Although encouraging FIs to work with customers affected by the Gulf Oil Spill, and although the Agencies confirm that they will consider the difficult position of FIs affected under these circumstances, the Agencies state that they will expect FIs to: (i) appropriately recognize credit losses as soon as a loss can be reasonably estimated; (ii) preserve the integrity of the FI’s internal loan grading methodology; (iii) maintain appropriate accruals and reserves on affected credit; and (iv) maintain adequate capital ratios or, if unable to do so, develop a satisfactory capital restoration plan.