Acting Comptroller of the Currency Brian Brooks wrote to state associations for cities, mayors and governors, warning them to consider the long-term adverse impact of stay-at-home orders on the nation’s banks.
“Certain aspects of these local orders, potentially threaten the stability and orderly functioning of the financial system the OCC (Office of the Comptroller of the Currency) is charged by law to protect,” Brooks wrote.
The letters were addressed to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors.
In a release accompanying the letters, the OCC said they were meant to raise awareness among state and municipal officials of the risks of closing businesses, and the subsequent risk their closures would present to the banking industry.
“Requiring businesses to remain closed decreases businesses’ ability to service their debt, thus increasing default risk in the banking system,” the release stated. “Lengthy business closures also reduce the value of collateral securing commercial real estate because of increases in burglaries and vandalism of vacant strip malls, storefronts, and the like.”
“National banks and federal savings associations entered the COVID-19 crisis extremely well capitalized and with strong liquidity,” Brooks wrote. “I ask that your members carefully consider the impact of their lockdown orders on the health and function of our shared national financial infrastructure as they implement the president’s guidance to determine when and how to unwind those orders.”
The OCC stated local responses to “previously safe and sound” businesses affected by the pandemic might prolong and worsen an economic downturn, reduce the availability of credit and capital that would support recovery, and result in safety and soundness issues.