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Regulators continue flexible approach to loan modifications in COVID-19 crisis

Federal examiners will continue to allow lenders to work with their borrowers on loan modifications in a troubled economy, even in cases where the loans may not turn out to be strong, officials from three financial regulatory agencies said Sept. 15.

Jeffrey Geer, acting chief accountant at the Office of the Comptroller of the Currency, said auditors "are not going to criticize" banks in those circumstances, but he stressed there will be a focus on whether banks are making an accurate and timely assessment of the situation and "calling loans what they are."

Geer's call for transparency was echoed by John Rieger, chief accountant for the Federal Deposit Insurance Corp. While regulators will be flexible, "the longer an accommodation is extended, the more we don't know," Rieger said.

The two officials shared a panel with Lara Lylozian, chief accountant at the Federal Reserve. They spoke on a range of financial issues at the National Conference on Banks & Savings Institutions, hosted by the American Institute of Certified Public Accountants.

On an issue closely watched by the financial industry, both Geer and Rieger said the government is not planning any significant changes to the Current Expected Credit Losses standard, or CECL, which requires banks to estimate expected losses over the remaining life of a loan upon origination.

They urged smaller financial institutions, such as community banks, to closely watch actions being taken to adopt the standard by the nation's largest banks. Most smaller lenders will not be adopting CECL until 2023, and many have taken further CECL relief offered under the CARES Act.

In looking at CECL issues, Geer said examiners will be looking in part at the macroeconomic data that banks have used to predict their losses over the life of a loan and how that data is being used.

The officials also answered questions on the Paycheck Protection Program. Under that program, loans to small businesses can be forgiven by the Small Business Administration. Borrowers have to work with banks to send forgiveness applications to the SBA, which then remits forgiven payments to the lender.

The FDIC's Rieger said the government considered the AICPA's view that payments that travel from the SBA back to lenders will be treated as loans during the settlement process. The official said his agency "looked into it" and decided the money "remains as a loan and does not become a receivable."