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Financial Services Law Insights and Observations

Acting Comptroller Brooks warns of lockdown effects on banks

Federal Issues Covid-19 OCC State Issues CARES Act

Federal Issues

On June 1, Acting Comptroller, Brian Brooks, wrote to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors warning of the adverse impact the regional economic shutdowns due to the Covid-19 pandemic will have on the nation’s banks. In the letter addressed to the U.S. Conference of Mayors, Brooks emphasizes the risks to the banking industry associated with state and local lockdown orders, including (i) physical risks associated with commercial real estate loan collateral, should businesses be forced to remain closed indefinitely; (ii) inability for businesses to generate revenue needed to repay loans; (iii) difficulties forecasting future delinquencies and losses with shifting definitions of “essential” businesses; and (iv) increased risks in bank robberies due to potentially permanent face mask requirements. The letter states, “[n]ational banks and federal savings associations entered the Covid-19 crisis extremely well capitalized and with strong liquidity,” and many aspects of the CARES Act rely on a strong banking system. Brooks urges state and local officials to “consider the impact of their lockdown orders on the health and functioning of our shared national financial structure” as they make plans to unwind, narrow, or end lockdowns.