The Federal Reserve announced Tuesday night that it would change its focus on the financial institutions it oversees to minimize disruptions and burdens.
“The board recognizes that the current situation is significantly affecting areas of the country in different ways and will work with financial institutions to understand the specific issues they are facing,” the Fed stated.
The Fed began by saying its focus would increase on broader monitoring of the financial system, looking for changes and challenges caused by the shift in operations because of COVID-19.
“For all firms, supervisors will focus on continued monitoring and analysis of operations, liquidity, capital, asset quality, and impact on consumers,” the Fed stated. “For large financial institutions, supervisors will also focus on operational resiliency and potential impacts on broader financial stability.”
Importantly, the Fed said it was reducing its focus on examinations and inspections of financial institutions during the pandemic.
“Any examination activities will be conducted off-site until normal operations are resumed at the bank and Reserve Banks,” the Fed stated.
That especially applies for smaller banks and institutions, with a re-examination of exams schedules coming at the end of April as the Fed determines whether conditions have changed.
“For supervised institutions with less than $100 billion in total consolidated assets, the Federal Reserve generally intends to cease all regular examination activity, except where the examination work is critical to safety and soundness or consumer protection, or is required to address an urgent or immediate need,” the Fed stated.
The Fed said institutions may receive exam reports from recently completed exams, but supervisors were working to ensure that all exam findings were still relevant.
“For supervised institutions with assets greater than $100 billion, the Federal Reserve intends to defer a significant portion of planned examination activity based on its assessment of the burden on the institution and the importance of the exam activity to the supervisory understanding of the firm, consumer protection, or financial stability,” the Fed stated.
For the largest institutions, the Fed also said they should submit their capital plans under the Comprehensive Capital Analysis and Review by April 6.
“The plans will be used to monitor how firms are managing their capital in the current environment, planning for contingencies, and positioning themselves to continue lending to creditworthy households and businesses,” the Fed stated.
Institutions who are working to fix findings from supervisory exams will be given an additional 90 days to do so, unless the Fed notifies the institution they need a more timely remediation.
The regulator also pledged to continue communicating with institutions as the situation developed.
“Financial institutions supervised by the Federal Reserve should work directly with their Reserve Bank and state banking agencies if they have questions on the planned supervisory activities,” the Fed stated. “The Federal Reserve recognizes that the current situation is significantly affecting regions of the country and institutions in different ways through no fault of their own and will work with financial institutions to understand the specific issues they are facing.”