The FDIC released supervisory guidance this week to FDIC-supervised financial institutions with direct or indirect oil & gas exposure.

“When O&G related borrowers experience financial difficulties, the FDIC encourages financial institutions to work constructively with borrowers to strengthen the credits and to mitigate losses where possible.” The release of this guidance suggests that this is an area of supervisory concern, particularly for institutions with concentrated exposures. The FIL warns that if a bank’s exposure to O&G remains concentrated notwithstanding efforts at diversification, that “may indicate the need for capital levels higher than the regulatory minimums.”

The FIL, which applies to large institutions as well as those with assets under $1 billion, makes a number of recommendations regarding institutional risk management policies. For example:

  • When working with troubled borrowers, a “well-conceived workout plan and effective internal controls” are required.
  • Management should closely monitor all credit concentrations and report the results of concentration monitoring programs regularly to the board of directors.