After helping financial institutions address safety, security, electricity, communication and transportation issues immediately following Hurricane Katrina, the chiefs of the Mississippi Bankers Association (MBA) and Mississippi Credit Union Association (MCUA) headed to Capitol Hill to testify on behalf of their respective national organizations on post-storm relief and recovery efforts.
On September 14, MBA executive director Mac Deaver and MCUA president and CEO Charles Elliott testified before the House Financial Institutions and Consumer Credit Subcommittee about issues most impacting the resiliency of storm-battered banks and credit unions.
As of September 30 in Mississippi, 32 bank branches were still impacted by hurricane damage. Of those, 17 Hancock Bank branches and 10 BancorpSouth and The Peoples Bank branches (five each) remain closed. Century Bank, First Federal Savings & Loan Association, First National Bank of Lucedale, Merchants & Marine Bank and New County Bank each have one branch that remains closed.
“Every bank in Mississippi was re-opened within four days of the storm, but obviously not every branch,” said Deaver.
Hurricane Katrina affected roughly two-thirds of Mississippi credit unions. Biloxi-based Keesler Federal Credit Union, the state’s largest credit union, suffered tremendous damage.
“Of 14 Mississippi credit unions in the direct path of the storm, eight received major water damage,” said Elliott. “Only one had flood insurance. Now those credit unions, which were not located in a flood zone, are not only struggling to re-establish financial services to the area, but they are also facing significant losses.”
U.S. Rep. Gene Taylor (D-Miss.) recently introduced legislation that would make flood insurance under the National Flood Insurance Program (NFIP) available for purchase, with penalty, to property owners affected by Hurricane Katrina who did not live in floodplains and did not have flood insurance.
“The MBA reviewed the bill last week and supports the concept, though we’re not tied to any particular bill,” said Deaver. “Our Coast bankers thought it was a good idea and we hope some solution will be forthcoming rather than litigation.”
Providing the National Credit Union Association (NCUA) temporary authority to waive certain Prompt Corrective Action (PCA) requirements would support credit unions trying to help hurricane victims, Elliott testified before the congressional subcommittee.
“PCA not only forces credit unions to restrict growth that results from the deposit of new funds, but also requires NCUA to impose significant sanctions on credit unions that face declining net worth,” he said. “Considerable PCA concerns may be faced by a number of credit unions in the path of Hurricane Katrina, due in part to the relocation of their membership, as well as to the uncertain future of their communities.”
Meeting regulatory requirements
Banks are facing challenges providing services to unknown people while meeting regulatory requirements and protecting their institutions from losses, said Deaver.
“Non-customer identification remains difficult,” he said. “Thousands of evacuated persons are seeking cash to provide themselves with basic provisions. Banks are doing their part by accepting checks and opening accounts to the extent possible. Bankers want to do the right thing to help the victims of Hurricane Katrina, but must balance regulatory and institutional concerns. Banks and the customers they serve will benefit from a regulatory environment that takes this fact into account.”
Questions have been raised about banks’ required cash transaction reports (CTRs) for transactions over $10,000.
“CTRs usually help the government track money laundering, but after the storm, a lot of folks were dealing on a cash basis, and some had to request large sums of cash to make payrolls,” said Deaver. “It placed a lot of difficulty on banks that had to make CTRs even on customers they knew. An effort is underway to relax that regulation, at least as it relates to banks’ known customers.”
The storm’s impact on banks’ capital ratios has also raised concerns. “A banker in Florida told me that after Hurricane Andrew, his $150-million bank grew to a $250-million bank in 60 days. The ratio of capital to deposits and assets went way out of whack and provisions had to be made for short-term activity. That may happen here,” said Deaver.
Long-term economic recovery
Coastal banks have also been dealing with environmental and regulatory issues concerning contaminated currency and coins in vaults.
“The short-term issue was search and rescue,” said Deaver. “It took some banks two weeks to account for all employees, and we’re pleased to say no fatalities were reported. Some banks say as many as one-fourth of employees had homes destroyed or significantly damaged, and that’s a major drain on human resources. That’s an untold story.
“But the long-term issue is economic recovery, and it would be very beneficial for Congress to help.”
Contact MBJ contributing writer Lynne W. Jeter at email@example.com.