Regulators work through crisis with bankers

Max Zappia

Regulatory agencies across the Upper Midwest have taken steps to help banks through the coronavirus outbreak. Regulators are reducing exam schedules, making it easier for banks to do business online, waiving notification requirements and taking other steps to make it easier for bankers to serve as many customers as possible during a crisis that has plunged the nation into recession.

Some states, such as Nebraska, ceased its exams of state banks, while states such as Minnesota, Wisconsin and Iowa went to remote exams only. 

Conditions were generally strong as the banking industry slid into the crisis mid-March. Wisconsin’s 143 state chartered banks, for example, averaged 1.25 percent return on assets in 2019; average capital ratio was 11.86 percent. 

“For several years, Minnesota banks have been improving net interest margin, profitability and capital,” commented Maxwell Zappia, deputy commissioner of financial institutions in the state of Minnesota. “That is all going to pay off now. The banks enter the crisis with a strong balance sheet.”

For state examiners, remote work is a way of life, so their adjustment to co-working or remote working is less jarring for them than it has been for employees in other lines of work. “Sixty percent of the Department of Banking staff works from their homes anyway,” observed Jeff Plagge, Iowa Superintendent of Banking. Many banks, he said, have excellent imaging capabilities, making remote exams all the easier to conduct. 

Regulators are stressing the importance of serving customers. “Prudent efforts to help consumers and businesses will not be subject to examiner criticism,” wrote Deborah Hagan, secretary of the Illinois Department of Financial and Professional Regulation, Division of Financial Institutions. “The Department supports Illinois banks and credit unions that choose to issue their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner.”

Banks are “especially encouraged to respond to borrowers from industry sectors particularly vulnerable to the volatility of the current economic environment as well as to work with small businesses, hourly workers and independent contractors that have less financial flexibility to weather the economic decline,” Hagan wrote in a March 30 letter.

That sentiment is consistent with a March 27 directive published by the FDIC, where the agency encourages financial institutions to provide borrowers with “payment accommodations that facilitate their ability to work through the immediate impact of the virus.” And the FDIC says payment accommodation does not automatically result in a troubled debt restructuring. “Examiners will exercise judgment in reviewing loan modifications, including TDRs, and will not automatically adversely risk rate credits that are affected by COVID-19.”

Jeff Plagge

The state of Nebraska was set to reevaluate its suspension of bank exams on April 24. The state’s Department of Banking and Finance said it took the step in order to prioritize working with their customers rather than worry about examinations. The state also authorized some online business transactions formerly mandated to be conducted in person, and waived several auditing functions typically required to be done in person according to strict schedules.

Zappia said bankers are taking a variety of measures to mitigate the risk of exposure to the virus. “I was made aware of some banks that have split their staff into two, adopting week-on, week-off schedules,” Zappia said of an arrangement which prevents an entire office staff from being exposed to the virus. “And they are still paying everyone their full-time salaries.”    

While no one knows how long the pandemic will last, there seems to be agreement that when it’s over not everything will go back to the way it was. “A lot of the work we are doing now is going to help us become more efficient in the future,” Zappia said. “We have been looking for ways to conduct our exams remotely for years. The experience we are gaining through this crisis is going to help us make progress on that goal.”

“This is going to change the way banking is done,” Plagge commented. “Previously, bankers were eased into using new technology, but now they are being slammed into using Zoom or Google Hangout meetings. That’s not going to change. In the past where someone might have hopped on a plane for a meeting, bankers are much more likely to figure out how to do the meeting remotely.”