Supervision and Regulation Letters

The Federal Reserve, along with the other members of the Federal Financial Institutions Examination Council (FFIEC),¹ is issuing the attached statement to regulated financial institutions to encourage them to work with their customers and borrowers who have been adversely affected by severe drought conditions across much of the Midwest and southern portions of the United States. 

As discussed in the statement, these drought conditions have resulted in lower crop yields and higher feed prices that have had a negative impact on some agriculture-related borrowers’ ability to service their debt.  Therefore, regulated financial institutions are encouraged to consider prudent modifications to these borrowers’ production and other loans to aid them in recovering from drought conditions.  Further, the Federal Reserve has instructed its examiners that financial institutions engaged in prudent loan workouts should not be subject to criticism even if a restructured loan has weaknesses resulting in an adverse classification.

Federal Reserve Banks are asked to distribute this letter to regulated financial institutions in their districts that may be affected by these drought conditions, as well as to supervisory and examination staff.  Questions about this letter may be directed to Donald Gabbai, Senior Supervisory Financial Analyst, at (202) 452-3358; or Mary Aiken, Manager, at (202) 721-4534, Credit, Market and Liquidity Risk Policy, in the Division of Banking Supervision and Regulation.  In addition, questions may be sent via the Board’s public website.²