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 of COVID-19 on banks — and help them navigate the business decisions ahead.
While the pandemic is developing, with new information released every day, here are recommendations for dealing with items of foremost concern to protect banks and their stakeholders.
Employees are without a doubt a community bank’s most valuable asset; their health, safety and legal rights should be of the utmost importance for bank management. Accommodating remote work 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. Consider this guide to managing employee safety, privacy and legal concerns relating to this outbreak, which was assembled by our colleagues.
Financial services providers have some unique regulatory requirements that affect employee considerations. Regulators have issued guidance regarding branch and lobby closures, 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 statements from the South Dakota Division of Banking and 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 keep cash flowing to put meals on the table when a job is lost or work must be sacrificed to care for children while schools and childcare facilities are closed?
Community banks are the first responders for such needs, and regulators have issued guidance on the 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 loan payments, such as offering skip-a-payment or payment deferral options (provided it can be done in a safe and sound manner). Be sure to maintain documentation on these decisions and any loan modifications, and review guidance from your regulators with respect to tracking delinquent and non-accrual loans.
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.
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.
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, branches: One way banks can keep their customers and employees safe is by limiting close-contact business. Banks should consider alternative service options such as limiting branch hours, closing branch lobbies and conducting banking services primarily through drive-thru lanes (approaches which the regulators have condoned). You may also want to remind your customers of the various ways they can access services without coming inside the building, by using ATMs, online banking, 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. In the event of a temporary closure, notify your primary regulators and customers as soon as possible. (For state-chartered banks in Minnesota, 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, as directed 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 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, 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 uncertainty. 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: Continue to provide appropriate training to staff and apply appropriate measures to maintain the security of the bank, your customers, and your employees. If an employee is concerned about an individual on premises, contact local law enforcement.
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.
As we approach the end of the first quarter, communicate with your regulators if you foresee any unworkable barriers to complying with regulatory reporting requirements. (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.
The uncertainty is perhaps the most frustrating part of this situation. Facts and best practices evolve daily, and banks and their advisors are doing their collective best to respond to these constant changes. Bankers should continue to monitor their regulator’s website for new releases and guidance. We encourage you to continue to seek regulatory and public health guidance from these sources:
Finally, continue to practice empathy toward 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 as we navigate this unknown territory.
Karen L. Grandstrand, Caitlin B. Houlton Kuntz and Erin M. Byom are attorneys with the Bank & Finance Group of Fredrikson & Byron, P.A., Minneapolis. They have provided this article as a courtesy. It has been edited from its original form.