We are a small bank, and several of our employees have been diagnosed with COVID-19. We have two employees on site who are maintaining daily operations and addressing customer needs, but they may have been exposed to the disease. We have been in contact with the FDIC and IDFPR regarding the circumstances, and the IDFPR has advised us of the necessary steps to make an emergency proclamation request and temporarily close our bank. We would like to know if there are any other requirements or regulations we should be aware of in the event of a closure, such as any Uniform Commercial Code (UCC) considerations. Also, we note that our ability to handle the daily cash letter would not be impeded as our correspondent bank handles those operational duties.

If your bank must close due to a large portion of your employees being diagnosed with COVID-19, we believe you generally would be excused from meeting the time limits imposed by the UCC, provided your bank exercises diligence in taking the necessary action as soon as it is able.

Delays by collecting banks and paying banks beyond the UCC’s time limits may be excused if the delay is caused by emergency conditions or other circumstances beyond the bank’s control — provided “the bank exercises such diligence as the circumstances require.” The commentary to the UCC provides that this exception also applies to time limits “imposed by special instructions, by agreement or by Federal regulations or operating circulars, clearing-house rules or the like.” We believe a closure due to a large portion of your employees being infected with COVID-19 would constitute an emergency condition beyond your bank’s control, as courts have stated that situations that may excuse delay include “abnormal operating conditions such as . . . substantial shortage of personnel during . . . emergency situations.”

Similarly, Regulation CC provides that if “a bank is delayed in acting beyond the time limits” set forth in the regulation due to emergency conditions or other circumstances beyond its control, “its time for acting is extended for the time necessary to complete the action, if it exercises such diligence as the circumstances require.”

Regarding other considerations related to closures, we recommend reviewing the FDIC’s FAQs for Financial Institutions Affected by COVID-19. The FAQs provide that financial institutions should contact their regional FDIC office (which your bank has done already) if they are unable to comply with regulatory reporting requirements. The FAQs also provide that financial institutions affected by COVID-19 should contact FinCEN and their regulators as soon as practicable about any potential delays in their ability to file required Bank Secrecy Act reports.

For resources related to our guidance, please see:

Illinois UCC, 810 ILCS 5/4-109(b) (“Delay by a collecting bank or payor bank beyond time limits prescribed or permitted by this Act or by instructions is excused if (i) the delay is caused by interruption of communication or computer facilities, suspension of payments by another bank, war, emergency conditions, failure of equipment, or other circumstances beyond the control of the bank, and (ii) the bank exercises such diligence as the circumstances require.”)

UCC § 4-109 cmt. 3 (“Subsection (b) is another escape clause from time limits. This clause operates not only with respect to time limits imposed by the Article itself but also time limits imposed by special instructions, by agreement or by Federal regulations or operating circulars, clearing-house rule or the like. The latter time limits are ‘permitted’ by the Code. For example, a payor bank that fails to make a timely return of a dishonored item may be accountable for the amount of the item. Subsection (b) excuses a bank from this liability when its failure to meet its midnight deadline resulted from, for example, a computer breakdown that was beyond the control of the bank, so long as the bank exercised the degree of diligence that the circumstances required.”)

First National Bank v. Colonial Bank, 831 F. Supp. 637, 639 (N.D. Ill. 1993) (“Examples of situations which may excuse delay include: ‘blizzards, floods, hurricanes, and other “Act of God” events or conditions, and wrecks and disasters, interfering with mails; [and] abnormal operating conditions such as substantial increased volume or substantial shortage of personnel during war or emergency situations.’”)

Regulation CC, 12 CFR 229.38(e) (“If a bank is delayed in acting beyond the time limits set forth in this subpart because of interruption of communication or computer facilities, suspension of payments by a bank, war, emergency conditions, failure of equipment, or other circumstances beyond its control, its time for acting is extended for the time necessary to complete the action, if it exercises such diligence as the circumstances require.”)

FDIC, FAQs for Financial Institutions Affected by COVID-19 (May 27, 2020), page 4, #3 (“The FDIC’s staff stands ready to work with financial institutions that may experience challenges fulfilling their reporting responsibilities, taking into account each financial institution’s particular circumstances. The FDIC encourages institutions affected by COVID19 to take reasonable and prudent steps to comply with regulatory reporting requirements to the extent possible, and to contact their Regional Office if they are unable to do so.”)

FDIC, FAQs for Financial Institutions Affected by COVID-19 (May 27, 2020), page 25, #1 (“On March 16, 2020, the Financial Crimes Enforcement Network (FinCEN) issued a press release encouraging financial institutions affected by COVID-19 to contact FinCEN and their functional regulators as soon as practicable if there were concerns about any potential delays in their ability to file required BSA reports. FinCEN’s Regulatory Support Section will continue to be available to support financial institutions for the duration of the COVID-19 pandemic. Financial institutions supervised by the FDIC should contact their Regional Office to discuss any concerns with filing BSA reports.”)