Regulators Remain Flexible With CUs Hit By Hurricanes

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State and federal regulators continue to make adjustments to examination practices for hurricane-affected credit unions, while at least 10 credit unions are reporting significant problems arising from the storms.

The federal banking, thrift and credit union regulatory agencies along with the state supervisory authorities in Alabama, Louisiana and Mississippi, have put together guidance for their examiners outlining the supervisory practices to be followed in assessing the financial condition of hurricane-hit financial institutions.

"Hurricane Katrina had a devastating effect on the U.S. Gulf Coast region that will continue to affect the business activities of the financial institutions serving this area for the foreseeable future," the agencies wrote in their jointly-issued guidance. "Some of these institutions may face significant loan quality issues caused by business failures, interruptions of borrowers' income streams, increases in borrowers' operating costs, the loss of jobs and uninsured or underinsured collateral damage."

In light of this, the agencies said examiners should continue to assign the component and composite ratings in accordance with the definitions in the Uniform Financial Institutions Rating System, but examiners must also consider the reasonableness of management's plans for responding to the storm's effects on the institution's business strategy, future operations given the economic conditions in its business markets.

"Examiners should consider management's effectiveness in responding to the changes in the institution's business markets caused by this unprecedented disaster and whether the institution has addressed these issues in its long-term business strategy," the agencies wrote, noting that CAMEL ratings may be lower for some affected institutions, and added, "however, in considering the supervisory response for institutions accorded a lower composite rating, examiners should give appropriate recognition to the extent to which weaknesses are caused by external problems related to the hurricane and its aftermath. Examiners should consult with their supervisors to determine what supervisory action, if any, should be taken."

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