Overview
SR 26-4 asks Federal Reserve-supervised banking organizations to assess how employment-authorization uncertainty may affect repayment capacity, collateral recovery, evidence, and shared exposure. The series moves from borrower-level assumptions to portfolio correlation, while preserving the letter’s fact-sensitive scope: it does not create a lending ban, universal threshold, formula, or outcome.
Learning outcomes
- SR 26-4 is a supervisory reminder about existing credit-risk obligations, not a categorical lending ban.
- Employment-authorization uncertainty should be assessed through its effects on repayment capacity, recovery, and evidence—not as a status-based credit result.
- Shared employer, geographic, or industry exposure can make credit deterioration correlated, but does not make common losses certain.
- The letter supports attention to changing conditions before delinquency while leaving thresholds, models, and outcomes institution-specific.
Keywords
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PlansFAQ
Does SR 26-4 create a ban on lending to people without legal work authorization?
No. SR 26-4 does not create a lending ban; it reminds Federal Reserve-supervised banking organizations to manage existing credit-risk obligations through fact-sensitive underwriting.
How can employment-authorization uncertainty affect repayment capacity?
It can make the source, duration, or location of repayment income less certain. SR 26-4 identifies possible employment interruption, reemployment difficulty, or removal without predicting an outcome for every borrower.
Does collateral guarantee repayment or recovery under SR 26-4?
No. Collateral does not replace repayment capacity, and recovery may depend on contacting the borrower, locating the asset, and enforcing the security interest under applicable facts and law.
When does borrower-level uncertainty become portfolio correlation under SR 26-4?
It becomes a portfolio concern when several loans share an employer, geographic market, industry, or workforce condition that a common change could affect at the same time.