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Board of Governors of the Federal Reserve System
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Board of Governors of the Federal Reserve System

Supervision and Regulation Letters

SR 12-13

FFIEC Statement on the Impact of Drought Conditions on Financial Institutions

October 19, 2012

Seal of the Board of Governors of the Federal Reserve System
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON, D. C.  20551
DIVISION OF BANKING
SUPERVISION AND REGULATION
SR 12-13
October 19, 2012
TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK
SUBJECT:   FFIEC Statement on the Impact of Drought Conditions on Financial Institutions
Applicability to Community Banking Organizations:  This guidance applies to state member banks, bank holding companies, and savings and loan holding companies with agriculture-related customers and borrowers affected by drought conditions, including those institutions with $10 billion or less in consolidated assets.

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

signed by
Michael S. Gibson
Director
Division of Banking
Supervision and Regulation


 
Notes:
1.  The FFIEC member organizations include the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, Consumer Financial Protection Bureau, and the State Liaison Committee.   Return to text

2.  See http://www.federalreserve.gov/apps/contactus/feedback.aspx Return to text

Last update: September 5, 2014