Banking regulators around the U.S. wrote a joint statement telling banks they wouldn’t be penalized for helping borrowers who are dealing with the financial consequences of the coronavirus, according to a report by Reuters.
They said they would give “appropriate regulatory assistance” to institutions that were affected by late payments and struggling customers.
The joint statement came from the Federal Reserve, as well as other financial regulators, and it asked that banks work with customers in affected areas and continue to take care of people’s financial needs.
“Regulators note that financial institutions should work constructively with borrowers and other customers in affected communities,” the agencies said, according to Reuters.
The letter is meant to allow banks the space to help customers and work out terms with people who may have trouble paying back loans due to the effects from the coronavirus.
Analysts have been warning that all of the precautions taken to stop the spread of the virus, like canceling public events, enacting quarantines and limiting travel, has had economic consequences like missed paychecks and lower earnings.
Karen Petrou, managing partner of Federal Financial Analytics, said that the move was a necessary one.
“Another week or so of growing COVID-19 contagion, canceled events, foregone travel, and shuttered businesses will lead to waves of delinquent debt from Americans with no other choice,” she wrote in a note, according to Reuters. “Households fearful of economic disaster will save themselves if they can. It’s thus up to policy-makers quickly to ensure that desperation doesn’t turn into disaster.”
There have been signs of weakness in the economy since May. One survey asked Americans what they would do if faced with a surprise $400 expense, and many said they’d have to borrow or sell something. Twelve percent said they simply wouldn’t be able to handle it.
Collectively, American households hold about $14 trillion in debt.