The Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) recommend environmental monitoring during the life of the loan. The OCC places monitoring under the bank’s Environmental Risk Management Program to “…provide guidelines that the lending staff should follow for monitoring potential environmental concerns for the duration of loans held in the bank’s loan portfolio.”
Similarly, the FDIC’s guidance states, “The environmental risk assessment should continue during the life of the loan by monitoring the borrower and the real property collateral for potential environmental concerns.” While this monitoring should be addressed in the bank’s Environmental Policy, neither governing authority specifically details how this monitoring is to occur.
While there is no clear-cut guidance on how environmental monitoring during the life of the loan is to occur, the monitoring should evaluate the environmental risks associated with the collateral by monitoring the following:
- Changes in the business activities of the borrower for environmental concerns
- Regulatory compliance of the borrower
- Potential for environmental contamination to adversely affect the collateral value