Banking agencies issue interagency guidance on bank examinations in the COVID-19 era


In June 2020, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation and the National Credit Union Administration, along with state bank and credit union regulators (collectively, the “Agencies”) issued interagency guidance (the “Guidance”) to their examiners concerning how the COVID-19 pandemic should impact how they evaluate banks, credit unions, bank and savings and loan holding companies, and the U.S. branches and agencies of non-U.S. banks (collectively, “Institutions”). In some ways, the Guidance scales back certain regulatory expectations with respect to asset and capital quality, but it also requires Agency examiners to evaluate the efficacy of the response of an Institution’s management to the COVID-19 pandemic.

To maintain a consistent and transparent regulatory system, the Agencies indicated that they will continue to assign supervisory ratings in accordance with established rating systems such as the Uniform Financial Institutions Rating System (“CAMELS”) and the Rating System for U.S. Branches and Agencies of Foreign Banking Organizations (“ROCA”). The Federal Reserve will continue to assign supervisory ratings to bank holding companies and savings and loan holding companies using the Large Financial Institution rating system.

General Considerations

The Agencies have guided examiners to consider the reasonableness and effectiveness of an institution’s response to the pandemic. Management’s actions in preparing and dealing with the effects of the pandemic will influence an Agency’s decision to issue formal or informal enforcement action. Additionally, the Agencies have noted that the effectiveness of an institution’s assessment of risk will be critiqued. The Agencies stated that examiners should look to see what, if any, measures the institution has adopted to identify and process risk given the novel challenges of the COVID-19 pandemic. In the Guidance, the Agencies also maintained that it would not criticize Institutions because of their good-faith reliance on regulatory guidance.

CAMELS or ROCA Specific Considerations

In assigning examiner ratings, the Agencies have directed examiners to take the following things into consideration. The Agencies keyed the Guidance off of the six components of a CAMELS rating, but indicated that examiners should also assign other regulatory ratings in a similar manner.

Capital adequacy

  • Institutions may experience a temporary decline in their regulatory capital ratio due to temporary balance sheet growth in response to the pandemic
  • Examiners should evaluate an institution’s capital relative to the nature and extent of its risk
  • Adequate capital planning and projections to ensure proper risk management will play a key role in favorable capital adequacy considerations

Asset quality

  • Though individual credits will continue to be assessed consistent with interagency credit classifications standards, the effects of the pandemic will be factored into such classifications
  • In assessing asset quality, an Institution will be rated on its ability to identify any particular loans or investments specifically impacted by the pandemic
  • Examiners should pay particular attention to the following:

- The reasonableness of a management’s plan to pursue foreclosure on nonperforming assets

- Management’s ability to complete credit risk reviews in an appropriate amount of time

- The appropriateness of an Institution’s underwriting standards

- Proper credit renewal, extension and modifications standards and nonaccrual reporting standards

- An institution’s methodology for calculating Allowance for Loan and Lease Losses as well as Allowances for Credit Losses

- The impact on real estate value and whether an institution is making good-faith efforts to obtain credible valuation on real property

  • Examiners should not criticize an Institution for making loans to small businesses in connection with the Paycheck Protection Program established under the Coronavirus Aid, Relief, and Economic Security Acts


  • An Institution’s management will be evaluated on its ability to identify and respond to risks specific to the pandemic
  • Management is expected to respond in real-time to the evolving challenges of the pandemic
  • More favorable ratings will be granted to management teams that adopt prudent planning policies
  • Close attention will be afforded to the operational risks of each of the Institutions and the responses in adopting operational models to best accommodate the technological limitations imposed by the pandemic


  • Examiners should take the magnitude of reductions to core earnings of a given Institution resulting from the pandemic into account when assessing the Institution’s earnings
  • Institutions should be assessed on its ability to account for accrued interest from modified loans
  • Pre-pandemic earnings will be evaluated against mid-pandemic earnings


  • Liquidity planning will be assessed to measure an Institution’s ability to utilize liquid resources
  • The Agencies stressed that an Institution’s reasonable use of the discount window and prudent use of liquidity buffers will not be criticized by examiners

Sensitivity to Market Risks and Risk Management

  • An institution’s ability to respond to unusual market fluctuations and asset and liability management programs will be evaluated

The Guidance certainly offers greater clarity for Institutions who may be concerned about how the Agencies will handle the upcoming examination cycle.  While Institutions should be familiar with the considerations discussed in the Guidance, the Agencies appear to be taking a reasonable approach to the extraordinary circumstances presented by the COVID-19 pandemic.