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Brooks warning on impact of COVID-19 lockdowns on banking

In letters to the National League of Cities, the U.S. Conference of Mayors, and the National Association of Governors, the Acting Comptroller of the Currency Brian Brooks urged mayors and governors to consider the adverse impact of a long-term regional economic shutdown on the nation's banks when making their decisions. He stated, “Certain aspects of these local orders potentially threaten the stability and orderly functioning of the financial system the OCC is charged by law to protect."

The letter raises awareness among state and municipal officials of certain risks closely associated with "essentially indefinite" business closures in certain cities and states. Requiring businesses to remain closed decreases businesses' ability to service their debt, thus increasing default risk in the banking system. Lengthy business closures also reduce the value of collateral securing commercial real estate because of increases in burglaries and vandalism of vacant strip malls, storefronts, and the like; in those cities considering cutting off electric, water, and other utilities to businesses that choose to remain open notwithstanding lockdown orders, the degradation of the physical loan collateral exposes banks to more severe losses.

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