Banking Agencies Issue Guidance on Supervision after Disasters

In the wake of record-setting hurricane and wildfire seasons, the federal banking agencies today issued new guidance on how examiners will approach financial institutions affected by major natural disasters. The agencies noted that when evaluating composite ratings for institutions, examiners should review management’s overall response and recovery planning. The agencies also said they would work with institutions to determine needs, reschedule exams and extend deadlines as needed.

“The examiner’s assessment may result in assigning a lower component or composite rating for some affected institutions,” the agencies said. “However, in considering the supervisory response for institutions accorded a lower rating, examiners should give appropriate recognition to the extent to which weaknesses are caused by external problems related to the major disaster and its aftermath.” The agencies also noted that formal actions normally taken for lower-rated banks “may not be necessary,” provided the bank has planned appropriately and is on track for recovery.

The guidance includes instructions for examiners on how to assess component ratings for CAMELS or ROCA, focusing on losses associated with the disaster, identification of credits affected, prudent planning by management, disaster-related effects on earnings and fluctuations in liquidity associated with customer cashflow needs.