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Regulators Relax Rules, Encouraging Banks to Aid Irene Relief

U.S. Banks Should Boost Lending After Hurricane Irene
Bill Peterson surveys damage at his home along the Walloomsac River following Hurricane Irene in Bennington, Vermont. Bankers should work with borrowers “experiencing difficulties beyond their control” because of the hurricane, the FDIC said. Photo: Peter Crabtree/Bloomberg

In the aftermath of Hurricane Irene, Thomas N. Pelletier, president and chief executive officer of Northfield Savings Bank in Vermont, is contending with the destruction of one flooded branch and several employees who’ve lost their homes.

His community bank, with about $630 million in assets, will also soon begin to help central Vermont rebuild. That’s why Pelletier says he’s pleased that U.S. regulators have announced they’ll allow banks to ease loan conditions for affected customers and will offer incentives for non-local financial institutions that fund disaster-relief projects.

“Although I’m confident that Vermont-based banks will be active lenders, quite frankly, additional resources would be welcome given the magnitude of the challenges faced by many homeowners and businesses,” Pelletier said in an interview yesterday.

Last weekend’s storm killed at least 40 people as it moved from the Caribbean through New England. It left an estimated $2.6 billion in damage and cut power to almost 8 million homes and businesses. Three days after the storm caused the worst flooding in Vermont in nearly a century, thousands of residents remained stranded by washed-out roads, downed trees, and damaged bridges. Many businesses and schools were closed as National Guard troops struggled to aid isolated communities.

After hurricanes Katrina and Rita in 2005, agencies including the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency issued guidance clarifying that banks can get credit under the Community Reinvestment Act if they lend in disaster areas far from their home bases. Usually, banks must make loans benefiting low- and moderate-income residents of the neighborhoods where they have branches to meet the terms of the law.

Loan Adjustments

Other types of regulatory flexibility after disasters -- such as allowing banks to adjust loan terms -- date back to at least the 1980s, according to FDIC officials.

“Banks are very important for a recovery in an area,” said Doug Johnson, vice president of risk management policy at the American Bankers Association. “The extension of credit is an important part of that. Agencies recognize that.”

Banks including those in North and South Carolina, New York, New England and Puerto Rico can extend repayments, restructure loans or ease terms for new lending, the FDIC said in a letter to the companies it regulates this week. Terms of the letter apply to banks with total assets of less than $1 billion, the FDIC said.

‘Prudent Efforts’

“The FDIC realizes that the effects of natural disasters on local businesses and individuals are often transitory, and prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism,” the agency said in the letter dated Aug. 29.

The FDIC, which insures deposits at more than 7,500 banks and thrifts, urged firms to monitor and stabilize investments in local-government projects that may have been hurt by the storm. Banks will be given some relief on filing requirements, the agency said.

Meanwhile, in an Aug. 25 letter, the OCC urged banks to consider waiving late-payment fees and ATM fees and also said it wouldn’t criticize the institutions it supervises for modifying loan terms.

“We have certainly seen banks take extraordinary actions after a natural disaster,” said Bryan Hubbard, a spokesman for the OCC. “Whether they have done that because it’s the right thing to do, because it’s a good business opportunity, or because of the CRA credit, I can’t say.”

Fee Cuts

Some institutions, including M&T Bank Corp. and SunTrust Banks Inc., have begun offering discounted loans in areas affected by the hurricane. JPMorgan Chase & Co. and Wells Fargo & Co. are cutting some fees for customers along the Eastern seaboard.

In Vermont Wednesday afternoon, 95 to 98 percent of the banking infrastructure was up and running, said Christopher D’Elia, president of the Vermont Bankers Association, who had been telephoning the organization’s members to assess the damage.

Regulators had been reaching out to banks, he said.

“All of them are offering support and understanding for this situation that the banks find themselves in,” D’Elia said. “My expectation is that banks will be able to do what’s responsible and feasible, and when we’re examined a year or two from now, I’m expecting the banks won’t have any difficulty.”

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