Supervision and Regulation Letters

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SR 23-5:

Prudent Commercial Real Estate Loan Accommodations and Workouts

BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM
WASHINGTON, D.C. 20551

DIVISION OF
SUPERVISION AND REGULATION

SR 23-5
June 30, 2023

TO THE OFFICER IN CHARGE OF SUPERVISION AT EACH FEDERAL RESERVE BANK

SUBJECT:

Prudent Commercial Real Estate Loan Accommodations and Workouts

Applicability:  This guidance applies to all institutions supervised by the Federal Reserve, including those with $10 billion or less in consolidated assets.

The Federal Reserve, along with the other financial regulators,1 has adopted the attached policy statement on Prudent Commercial Real Estate Loan Accommodations and Workouts. The Federal Reserve and the other financial regulators issued this policy statement to update previous guidance, reinforce the message that financial institutions should work prudently and constructively with creditworthy commercial borrowers experiencing financial difficulties, and clarify that such message applies in all stages of the economic cycle. This policy statement is intended to promote supervisory consistency among examiners and ensure that supervisory policies and actions do not inadvertently curtail the availability of credit to sound borrowers.

This policy statement provides a broad set of principles relevant to all commercial loan accommodations and workouts. The policy statement also includes guidance applicable to the specific risks and structures of commercial real estate (CRE) loans. Consistent with the safety and soundness standards, this policy statement updates and supersedes existing supervisory guidance to assist financial institutions’ efforts to modify CRE and other commercial loans to borrowers who are, or may be, unable to meet a loan’s current contractual payment obligations.2 The policy statement also includes: a section on short-term loan accommodations; a discussion of recent accounting changes on estimating loan losses; and updated examples that clarify how to classify and account for loans modified or affected by loan accommodations or loan workout activity.

Reserve Banks are asked to distribute this letter to the supervised institutions in their districts and to appropriate supervisory staff. Questions may be sent via the Board’s public website.3

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

Supersedes:

  • SR letter 09-7, “Prudent Commercial Real Estate Loan Workouts”

Attachments:
Notes:

  1. The other financial regulators are the Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency.  Return to text.

  2. This policy statement replaces the interagency Policy Statement on Prudent Commercial Real Estate Loan Workouts (October 2009).  Return to text.

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

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Last Update: June 30, 2023