In 2006, the OCC and other member agencies of the Federal Financial Institutions Examination Council and the Conference of State Bank Supervisors published Lessons Learned From Hurricane Katrina: Preparing Your Institution for a Catastrophic Event. The publication describes financial institutions' experiences and lessons learned in the aftermath of Hurricane Katrina that other institutions may find helpful in considering their readiness for a catastrophic event.
John C. Dugan, Comptroller of the Currency
Three years after Hurricane Katrina devastated New Orleans and the Gulf Coast -- and while assessments of the damage from hurricanes Gustav and Ike, and this year's hurricane season are still under way -- three words strike me as the essential keys to long-term regional recovery: patience, perseverance, and partnering.
Inevitably, disasters of such magnitude create challenges that are more complex and difficult to address than anyone could anticipate. Thus the compelling need for patience -- even though, as time goes on, patience can wear thin and is never inexhaustible.
As for perseverance, it's obvious to anyone who has been on the scene, whether as a long-term resident or short-term visitor, that the recovery process will continue for many years -- during which those committed to recovery will have to overcome countless obstacles, from uncertain housing market conditions to rising insurance costs.
And that brings me to the compelling need for partnering. A vast natural disaster demonstrates, beyond dispute, that no one can go it alone. No individual or group of citizens, no government entity, no financial institution has all the resources needed to restore a great city and revitalize an entire region. Everyone has to find ways to work together -- pooling resources, sharing expertise, cutting red tape, finding creative ways to remove barriers to progress.
There has been ample media coverage of the obstacles encountered by Gulf Coast residents and institutions trying to rebuild livelihoods and neighborhoods in the wake of Katrina and Rita. Inevitably, less attention has been paid to the success stories -- the many instances in which banks, community development organizations, entrepreneurs, and government entities have worked together to get recovery projects funded and to move them from the drawing boards to fruition. But if we want to create a climate that supports sustainable long-term recovery, it's vitally important to hear these stories and learn how such partnerships are working. That's what this issue of Community Developments is all about.
Disaster and Response
When Katrina struck the Gulf Coast in August 2005, it became the costliest natural disaster in U.S. history, destroying or damaging millions of homes and businesses and leaving in its wake the greatest displacement of people since dust storms covered the Great Plains in the 1930s. And Katrina was followed by Rita. Then Wilma struck Florida.
Ultimately, these storms displaced more than 750,000 people, disrupted at least 125,000 businesses, and damaged over 1.2 million housing units, with more than 300,000 totally destroyed or severely damaged (see chart for housing damage estimates). To a great extent, the storms were equal-opportunity calamities, afflicting affluent as well as low- and moderate-income communities and destroying large as well as small businesses. Together they created the most urgent and extensive need for community development investment in the modern banking era.
I visited with area families and business owners and saw first-hand the appalling damage to their homes, businesses, and communities. It was clear that the recovery effort would require massive resources and many years of work, and that banks would play a key role.
Three years later we can see considerable evidence of progress -- while harboring no illusions about the challenges that still lie ahead. Those challenges have been magnified by this year's hurricane season, even though the damage has not been on the same scale.
In the immediate aftermath of the 2005 storms, banks helped to avert additional disasters, both personal and regional, by working with borrowers needing to postpone mortgage and other credit payments. They also worked with lawmakers and regulators to channel more funding resources to the region by having it designated it as the Gulf Opportunity (GO) Zone. Areas in the GO Zone include those directly affected by storm and flooding damage from the hurricanes as well as those affected by the movement of residents from the directly impacted areas to surrounding areas.
High on the critical list was the need to replace structures that had been destroyed and to renovate damaged housing, businesses, and community facilities. Areas experiencing substantial in-migration also faced a severe need to develop new housing and community facilities. East Baton Rouge Parish, for example, suddenly gained some 19,000 storm-displaced residents, and other communities found themselves similarly stressed.
National banks are addressing these needs. For example:
- Banks are partnering with local nonprofit organizations to support the rehabilitation and reconstruction of single-family homes. Banks provide financing; the nonprofits provide construction management and financial counseling for homeowners.
- Banks are supporting small business recovery and efforts to establish new businesses. In one partnership with local government and a nonprofit community development financial institution (CDFI), several banks are supporting the Baton Rouge Small Business Loan Fund, providing flexible financing for start-up or operating capital and targeting women and minority entrepreneurs.
- Congress provided supplemental New Markets Tax Credit (NMTC) allocations for the GO Zone, with a major share going to banks. Banks are using their NMTC investments to support businesses, schools, and other community facilities.
- Housing developers -- including for-profit and nonprofit entities, established national entities, and local start-ups -- have used the expanded Low-Income Housing Tax Credit (LIHTC) program in the GO Zone to rehabilitate, replace, and create affordable multifamily housing, creating opportunities for bank investments in the process.
- Banks are investing in regional funds supporting the reconstruction and creation of new, affordable housing. Several banks have invested in the Louisiana Loan Fund, a public/private partnership managed by the Local Initiatives Support Corporation and Enterprise Community Partners. The fund provides much-needed acquisition and predevelopment financing for affordable housing developers in Louisiana's GO Zone.
The OCC's Support
In 2005, we created a new position to serve as our Gulf Coast liaison -- a District Community Affairs Officer (DCAO) based in the region helping to organize working groups of banks, local government officials, and leaders from business and nonprofit sectors.
Federal regulators, including the OCC, reinforced the importance of banks' roles in supporting recovery. The Compliance Corner describes how the definition of community development in the rules implementing the Community Reinvestment Act (CRA) was amended to include support for recovery efforts in a federally declared disaster. Other regulatory changes have increased the level of CRA consideration that banks may receive for supporting recovery.
- The 2006 CRA Q&As explain that activities will be considered to revitalize or stabilize a designated disaster area if they are recovery-related and help attract or retain businesses or residents.
- OCC Bulletin 2006-6 explains how national banks located outside designated disaster areas may receive positive CRA consideration for activities supporting recovery.
- The time period for which banks may receive positive CRA consideration for activities supporting recovery has recently been extended from 2008 to 2011 (see OCC Bulletin 2008-24).
- Additional bank support will be needed to help communities impacted by this year's hurricanes Gustav and Ike, and potentially by other storms. CRA credit is available for bank activities in support of recovery efforts to revitalize and stabilize federally designated disaster areas for three years after the designation has been made. To determine which counties have been designated and when, banks should review the Federal Emergency Management Agency's Designated Disaster Areas listing.
To help maximize the impact of bank investments in affected areas, the OCC worked with congressional leaders to restore banks' public welfare investment authority to include distressed middle-income census tracts, and this was included in the 2008 Housing and Economic Recovery Act (HERA). This change facilitates national bank direct public welfare investments, such as affordable housing, in areas of the GO Zone that were not defined as low- and moderate-income in the 2000 Census. (See "A Look Inside ..." for more details on other HERA changes).
Three years after the storms of 2005, national banks and their partners are providing much of the financial fuel and technical support needed to help bring back Gulf Coast communities. As you'll learn from the articles in this issue, those three key words -- patience, perseverance, and partnering -- are hard at work in a striking variety of ways.
But there's much more to be done. For years to come, innovative and resourceful bank lending and investments can help shore up infrastructure, rebuild businesses, and provide affordable homes for people impacted by the Gulf Coast storms. These are not just good works: it can be good business for banks. The challenges and economic opportunities presented by the Gulf Coast offer a variety of ways for bankers to spur development and economic revitalization and grow their business in ways that are both sound and constructive.
$1 Billion Gulf Coast Rebuilding Challenge Channels Capital into Gulf Region
The $1 Billion Gulf Coast Rebuilding Challenge (the Challenge) channels capital in the form of deposits from America's large corporations to local community banks participating in the Certificate of Deposit Account Registry Service, or CDARS.
By simply depositing funds in Federal Deposit Insurance Corporation (FDIC)-insured, interest-bearing certificates of deposit (CD), corporations and other depositors are helping to rebuild the region. These corporations include Bank of America, Fannie Mae, First American, General Motors, the Home Depot, and Microsoft.
The Challenge was announced in November 2006. Thirty-five community banks in the storm-damaged region are currently eligible to receive deposits. Corporate participants pledge to deposit $1 million to $5 million for five years through an eligible Gulf area community bank, though some participants have deposited much more than $5 million.
The funds are placed in CDs using the CDARS service, which makes the full amount of the deposit eligible for FDIC insurance.
With CDARS, a bank that belongs to the Promontory Network can offer a depositor access to up to $50 million in FDIC coverage. Through CDARS, the community bank places the funds in FDIC-insured CDs issued by multiple banks, making the deposits eligible for FDIC insurance for up to $50 million. The community bank receives matching deposits from other banks, making the full amount available for Gulf Coast area lending.
To receive deposits through the Challenge, a bank must have less than $500 million in assets, be located in areas affected by the storms as designated by the Gulf Opportunity Zone Act, and be a member of the Promontory Network.
Alden J. McDonald Jr., President and Chief Executive Officer of the New Orleans-based Liberty Bank & Trust, a participating community bank, summed up the purpose of the Challenge: "Get us the money to do our jobs and we'll help get people back on their feet."
For more information, e-mail Phil Battey, Promontory Interfinancial Network, or call (703) 292-3357. You may also e-mail Brian Christie, Promontory Interfinancial Network, at (703) 292-3456.