DFS issues industry letters regarding coronavirus, requires financial institutions to submit preparedness plans


The New York State Department of Financial Services has issued two industry letters related to the coronavirus — one on the potential financial impacts the virus could have on financial institutions and the other requesting information regarding the preparedness steps being taken in response to the outbreak.

Both letters dated March 10 mandate that within 30 days, financial institutions provide DFS with the steps they are taking in response to the coronavirus.

Regarding the potential financial impacts of coronavirus, “the virus has already had adverse economic effects domestically and globally and the effects are likely to continue,” the letter stated. “[G]iven the potentially significant effects an outbreak of COVID-19 could have on your institutions, it is critical that institutions establish plans to address how they will manage the potential effects of the outbreak and assess potential disruptions and other risks to their services and operations.”

Financial institutions’ risk-management plans should include steps they are taking to assess and monitor the potential financial risk that may arise from the outbreak of COVID-19, according to the letter, in which DFS is requesting the following information:

  • assessment of the credit risk ratings of the customers, counterparties and business sectors impacted by COVID-19;
  • assessment of the credit exposure to customers, counterparties and business sectors impacted by COVID-19, arising from lending, trading, investing, hedging and other financial transactions, including any credit modifications, extensions and restructurings (including capitalizations of interest);
  • assessment of the scope and the size of credits adversely impacted by COVID-19 that currently are in, or potentially may move to, non-performing/delinquent status, including consideration of stress testing and/or sensitivity analysis of loan portfolios and the adequacy of loan loss reserves;
  • assessment of the valuation of assets and investments that may be, or have been, impacted by COVID-19;
  • assessment of the over-all impact of COVID-19 on earnings, profits, capital, and liquidity (including impact on loan-to-deposit ratio) of your institutions; and
  • assessment of reasonable and prudent steps to assist those adversely impacted by COVID-19.

Regarding operational preparedness plans, DFS says it wants to ensure financial institutions have preparedness plans in place to address operational risk posed by the outbreak of the coronavirus, but is aware that “a number of regulated institutions may already have, or may be working on, such plans,” according to the letter.

“An institution’s preparedness plan should be sufficiently flexible to effectively address a range of possible effects that could result from an outbreak of COVID-19, and reflect the institution’s size, complexity and activities,” according to the letter. Plans, at a minimum, should include the following, according to DFS:

  • preventative measures tailored to the institution’s specific profile and operations to mitigate the risk of operational disruption, which should include identifying the impact on customers, and counterparts;
  • a documented strategy addressing the impact of the outbreak in stages, so that the institution’s efforts can be appropriately scaled, consistent with the effects of a particular stage of the outbreak, which includes an assessment of how quickly measures could be adopted and how long operations could be sustained under different stages of the outbreak;
  • assessment of all facilities (including alternative or back-up sites), systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for long periods or are working off-site, including an assessment and testing as to whether large scale off-site working arrangements can be activated and maintained to ensure operational continuity (this would also include an assessment and testing of the capacity of the existing information technology and systems in light of a potential increased remote usage);
  • an assessment of potential increased cyber-attacks and fraud;
  • employee protection strategies, critical to sustaining an adequate workforce during the outbreak, including employee awareness and steps employees can take to reduce the likelihood of contracting COVID-19. assessment of the preparedness of critical outside-party service providers and suppliers;
  • development of a communication plan to effectively communicate with customers, counterparties and the public and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;
  • testing the plan to ensure the plan policies, processes and procedures are effective; and
  • governance and oversight of the plan, including identifying the critical members of a response team, to ensure ongoing review and updates to the plan, including the tracking of relevant information from government sources and the institution’s own monitoring program.

The full letters on the potential financial impacts of the coronavirus and request for operational information related to the outbreak can be accessed on the DFS website.



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