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Problem Loans

Banks manage problem loans through loan workouts. Loan workouts can take a number of forms: simple renewal or extension of the loan terms; extension of additional credit; formal restructuring of the loan terms with or without concessions; or, in some cases, foreclosure on underlying collateral. Banks should choose the alternative that will maximize the recovery and minimize the risk on each troubled loan.

References

Credit Administration: Final Interagency Policy Statement on Prudent Commercial Real Estate Loan Accommodations and Workouts (OCC 2023-23, June 2023), Policy Statement
Provides guidance on risk management practices for loan workouts within a framework of financial accuracy, transparency, and timely loss recognition

Troubled Loan Workouts and Loans to Borrowers in Troubled Industries (BC 255, July 1991)
Covers the various types of loan workouts and accurate reporting of troubled loans