The Federal Reserve Has Adapted Its Supervisory Practices in Response to the COVID-19 Pandemic

     On Friday, May 8, 2020, the Federal Reserve published its semi-annual Supervision and Regulation Report in tandem with its testimony before Congress.  The report explained that the Fed has implemented several measures to accommodate the novel issues faced by financial institutions in light of the COVID-19 pandemic.  Notably, the report explains that in the interest of the health and safety of both examiners and bank employees, the Fed has ceased almost all examination activity for institutions with less than $100 billion in total consolidated assets, except where the work is critical to safety and soundness or consumer protection or is required to address an urgent supervisory concern.  For institutions with more than $100 billion in total consolidated assets, the Fed deferred a significant portion of examinations planned for the second quarter of 2020 after analyzing the burden on supervised firms from the effects of the current crisis.  For the remainder of the year, any examination activity at large financial institutions will target areas of heightened risk due to containment measure developments as well as known deficiencies.

     Also, before the current crisis, the Fed had launched the 2020 supervisory stress test to evaluate the resiliency of bank capital, based on bank exposure data as of the end of 2019.  Now, however, the Fed intends to additionally conduct a series of sensitivity analyses using alternative scenarios and certain adjustments to portfolios to credibly reflect current economic and banking conditions.  Despite these measures, the Fed did note that “[t]he global banking system is more resilient and better placed to sustain financing to the real economy as a result of regulatory reforms enacted, and measures taken by the banking industry, in the aftermath of the 2008 global financial crisis[.]”

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Megan Sullivan is a Partner in the New York office of Faruqi & Faruqi, LLP.

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