In these uncertain times, questions swirl among community bankers about the best way to support their customers and communities through our current public health crisis while still looking out for their employees and shareholders. Regulators and industry groups have been quick to publish guidance and suggestions to minimize the impact on banks and help them navigate the business decisions ahead.
While this is a developing situation with new information released every day, below are our recommendations for dealing with those items of highest concern to protect banks and their stakeholders.
Employees are without a doubt a community bank's most valuable asset and, accordingly, their health, safety and legal rights should be of the utmost importance for bank management. Accommodating remote working and flexible schedules, reducing or eliminating business travel, and dealing with employees who are sick or pulled away by family care obligations – as well as the legal implications of each – are very real concerns that require careful navigation. Our trusted Employment & Labor colleagues have assembled a guide to managing employee safety, privacy and legal concerns relating to this outbreak.
Financial services providers have some unique regulatory requirements that affect employee considerations. Regulators have issued guidance regarding branch and lobby closures (as discussed below), and certain states, including Wisconsin and South Dakota, have lifted restrictions on mortgage originators working outside of their licensed office location, provided certain requirements can be met. For more information, please refer to the statement from the Wisconsin Department of Financial Institutions.
Consumers and small businesses are struggling. How will bills be paid? How will payroll be met? How will parents guarantee the cashflow to keep meals on the table when jobs are lost or work must be sacrificed to care for children while schools and care facilities are closed? Community banks are the first responders for these needs, and regulators have issued guidance discussing appropriate accommodations banks can make to ensure financial services remain accessible.
First, help customers access cash when they need it. Simple things like waiving ATM fees, overdraft fees and early withdrawal penalties on time deposits can go a long way. Similarly, consider easing restrictions on cashing out-of-state or non-customer checks to assist those who may be forced to travel or relocate.
Second, find ways to work with customers who might be struggling to make payments on loans, such as offering skip-a-payment or payment deferral options (provided, of course, it can be done in a safe and sound manner). Be sure to maintain documentation on these decisions and any loan modifications made, and review guidance from your regulators with respect to tracking delinquent and non-accrual loans (see the links below).
Third, be vigilant against scams designed to take advantage of the climate of fear. Email, phone and website link scams using COVID-19 as a pretext to convince customers (and bankers!) to transfer funds or disclose account information are on the rise, including communications claiming to be from the FDIC.
And, finally, communicate clearly with customers and assuage their financial worries. Utilize signage, social media, phone system messages and website banners to keep customers apprised of the services available to them as well as any changes to the bank’s hours or lobby availability (as discussed below).
Protecting Bank Operations
Dust Off Those Business Continuity Plans
While this particular situation might seem unique, scenarios like this are the reason banks are required to maintain business continuity and disaster recovery plans. Review your bank’s plans and follow any designated procedures to the extent applicable. Marshall your technology and management resources to deal with changing circumstances with as much agility as possible.
Restrict Access to Lobbies and Branches, As Appropriate
One way that banks can keep their customers and employees safe is by limiting close-contact business. Banks should consider alternative service options to continue to provide for their customers, such as limiting branch hours, closing branch lobbies and conducting banking services primarily through drive-through lanes (approaches which the regulators have condoned in their releases). You may also want to remind your customers of the various ways to access services absent a physical presence, such as the use of ATMs, online account management, telephone banking, mobile applications and other digital channels.
Keep your primary regulators apprised of staffing challenges or safety issues that may require you to close a branch, and in the event of a temporary closure, notify your primary regulators and customers as soon as is practical. Keep in mind that for Minnesota state banks, if a branch closure is to last longer than 48 consecutive hours, excluding holidays, prior approval from the Minnesota Department of Commerce is required.
Reconsider In-Person Gatherings
It is important that banks practice social distancing guidance issued by the Centers for Disease Control and Prevention to keep their employees, board members, shareholders and communities safe. For those that have board and shareholder meetings scheduled in the near future, conduct meetings as much as possible via teleconference, video conference, or other digital channels.
Be careful to review your organization’s governing documents to confirm that holding board and shareholder meetings remotely is permissible, and consult your legal counsel as appropriate to make sure all applicable notice requirements are being followed (including those for changing a meeting notice that may have already been sent out). Postpone community events and other gatherings for the time being and continue to encourage staff to practice social distancing both in and outside the office.
Manage Capital and Liquidity
Banks are taking numerous steps to support their customers, communities and employees. And, as noted above, bank regulators are encouraging them to do so, consistent with safe and sound banking practices. The “safe and sound banking practices” is always the difficult concept to apply during times of stress and uncertainly. What seems reasonable and prudent at the time can be questioned later. Therefore, carefully document the basis for decisions and discussions with regulators.
Second, liquidity remains important. A liquidity crisis can cause an overnight failure; a capital crisis is by contrast, a slow death. Therefore, monitor cash outflows (cash withdrawals, drawdowns on lines of credit and HELOCs, etc.) and test back-up sources of funding. Further, gather the legal paperwork on those sources, and review and understand it.
In addition, do not forget liquidity needs at the holding company level. If your holding company’s only source of cash is dividends from the subsidiary bank, this is a risk. When a bank encounters financial stress, either the bank regulator, the Federal Reserve as the regulator of holding companies, or both, will not allow the holding company to obtain dividends from the bank even for subchapter s distributions.
Third, with respect to capital, determine whether now is the time to increase your buffer (e.g., a bank stock loan) or decrease distributions.
Additional recent regulatory guidance on capital and liquidity issued by the federal bank regulators can be found here.
Be Mindful of Security Considerations
Continue to provide appropriate training to staff and apply appropriate measures to maintain the security of the bank and your customers and employees. If an employee is concerned about an individual(s) on the bank’s premises, contact local law enforcement.
Further, as noted above, remain vigilant against potential scams designed to take advantage of distraction and panic. Encourage staff and customers to report any phishing attempts or suspicious emails, phone calls, or mail to management, and remind employees to refrain from clicking on links or opening emails that appear suspicious or come from an unknown source.
Protecting Regulatory Interests
As we approach the end of first quarter, communicate with your regulators if you foresee any unworkable barriers to complying with regulatory reporting requirements (note, however, that as of March 20, reporting requirements and deadlines generally remain unchanged). If your bank has any upcoming scheduled examinations or inspections, touch base with examiners to address any logistical or operational concerns in order to minimize disruption and burden for both your bank and your examiner team.
Proceed with Caution and Stay Informed
The uncertainty is perhaps the most frustrating part of this situation. Facts and best practices are evolving daily, and banks and their advisors are doing their collective best to respond to those constant changes. Bankers should continue to monitor their regulators’ websites for new releases and guidance. We encourage you to monitor the below sources of regulatory and public health guidance for further updates:
- Federal Deposit Insurance Corporation
- Office of the Comptroller of the Currency
- Board of Governors of the Federal Reserve System
- Federal Reserve Bank of Minneapolis
- Centers for Disease Control and Prevention
- World Health Organization
Finally, continue to practice empathy towards your customers, employees, and each other. While times are uncertain right now, we are all in this together, and we will all get through this together. As always, continue to reach out to your legal counsel with any questions or concerns. We at Fredrikson & Byron are here to support you and your teams through this challenging time. Like you, we are taking precautions to protect our employees, clients and community, but we remain committed and available to advise and assist our clients in navigating this unknown territory.