Breathing Room

One of the priorities for the banking practice at Bryan Cave Leighton Paisner LLP during the early days of the COVID-19 crisis was to help clients avoid a George Bailey situation.

"At first, their questions were about having funds available. Do we limit large cash withdrawals?" said partner Robert D. Klingler. "Because they have a limited amount of cash in the vault, and if one panicked customer comes in and wants to empty their entire checking account, that's less cash available."

That's a very real dilemma not unlike the scenario faced by Bailey Brothers Building & Loan in the 1946 classic "It's a Wonderful Life," which struggled to keep solvent following a sudden rush of withdrawals. Part of what makes the U.S. banking system unique is how so many of them effectively double as small businesses, Klinger said.

"That 'It's a Wonderful Life' scenario -- it's not just a movie, it's reality. Your money is in the restaurants that are having to close down, all of those businesses that have to make zero revenue right now. We're trying to find the path forward for them," said Klingler, who counsels community banks in a number of combinations, including purchasers, sellers and mergers of equals as well as branch transactions and asset lift-outs.

State and federal support and a general consensus of leniency have helped keep the path forward relatively clear, said Klingler, an Atlanta-based partner who advises financial institutions and investors in financial companies on a variety of strategic corporate transactions.

Klingler said his clients service roughly 5,000 banks total throughout the U.S. with many of them calling on him to handle day-to-day legal matters as outside general counsel. The past week-plus in his practice has been almost exclusively focused on the $350 billion portion of the federal CARES Act that's dedicated to the Small Business Paycheck Protection Program, he said. The lead editor of the firm's blog and a regular contributor to its COVID-19 news alerts, Klingler laid out the banks' obligations under the SBA's Paycheck Protection Program in an April 2 blog post.

"It's obviously a critical part of the overall stimulus for all 5,000 of those banks, which will assist with a very quick infusion of cash into small businesses, to try and minimize those paycheck losses," Klingler said.

Douglas A. Thompson

Douglas A. Thompson, a Santa Monica partner serving as co-lead of the firm's banking practice, said most parties involved on the transactional end have played nice at the onset of the pandemic.

But as a litigator defending financial service institutions and other businesses in putative consumer class actions and other complex matters, Thompson said it's easy to see how that peace won't last.

"Often we see an 80-20 sort of balance where many businesses and people will try to be patient and productive in working through challenges as we all try to get through this together," Thompson said. "But we're already seeing litigation filed regarding regulatory provisions and COVID-19 related economic impacts."

Specifically, with regard to interpretations of the CARES Act, Thompson said he's already heard concerns from clients and seen complaints filed over what's required in terms of mortgage forbearance and new lending programs.

Thompson said it's possible organizations will assert claims over loans not being processed quickly enough despite the finite amount of money on hand. Banks will also end up involved in litigation with businesses unable to survive the economic downturn.

"This is just a drop in the bucket, and there's a lot of things that still aren't clear. The CARES Act is an appropriate measure, it was meant to help, but the devil is always in the details," Thompson said. "The information changes daily, and our clients are drinking from a hose. So we're trying to triage through those issues as quickly as possible."

But given the vital tie between their banking clients and many of the communities they belong to, Klingler said he was confident that whatever the financial future looks like, they'll weather the storm together.

"I think there's generally been a broad consensus. The belief is if an institution is going to be able to recover in whatever the future looks like, we don't want to take adverse action now," he said. "We want to give them that breathing room to recover."