Banks and their regulators quickly got back up to speed in markets hit hard by recent hurricanes, in part due to the lessons learned from Hurricanes Katrina and Sandy, a panel of regulators said Tuesday.

By stocking up on excess cash, having online banking platforms maintained from remote locations and keeping extra fuel and generators, bankers were largely able to quickly get themselves and their customers back on their feet.

“Customers heavily rely on their bank for access to services and access to deposits to get cash out, and in times of natural disaster, just being able to get access to cash and banking services makes an enormous psychological difference for many customers in hard hit areas,” said James Watkins, a deputy director of supervisory examinations with the Federal Deposit Insurance Corp.

A downed tree lays on top of a truck outside a trailer in Frostproof, Florida.
“We’ve unfortunately had lots of events that have happened, but I think they’ve forced the industry to be much better at contingency planning and preparing for things,” said Mary Aiken, a senior associate director with the Federal Reserve Board. Bloomberg News

The regulatory agencies have also fine-tuned their own natural disaster protocols over the years, the regulators said. As an example, the three agencies coordinate daily phone calls ahead of a storm’s approach and afterwards to compare notes on the banks that lost branches or need extra cash or other assistance.

Kristin Kiefer, a deputy comptroller of the northeastern district for the Office of the Comptroller of the Currency, said that includes being flexible with banks after a disaster, too. Regulators won’t jump on a bank about past-due loans or closed offices and will encourage Community Reinvestment Act-type lending and support for hard-hit municipalities, she said.

“We’ve unfortunately had lots of events that have happened, but I think they’ve forced the industry to be much better at contingency planning and preparing for things,” said Mary Aiken, a senior associate director with the Federal Reserve Board.

During the wide-ranging panel discussion at the Risk Management Association’s annual conference in Boston, the regulators also touched briefly on marijuana banking. Responding to an audience member’s question, Watkins said the FDIC has followed the Financial Crimes Enforcement Network’s 2014 guidance on dealing with pot businesses. The agency expects banks to follow that guidance as well.

“If a bank were to come before say, the FDIC, with a bank application that said we want to open a business line for marijuana business, that would be a challenge because it’s a violation of federal law,” he said.

The regulators also discussed reputation risk — in particular, best practices for managing it.

Aiken described reputation risk as a secondary concern that could probably be best addressed by focusing on the types of issues that could cause the public to lose faith in an institution.

Excessive risk taking, outsize concentration risk, and poor operational risk management are all issues that could lead to an inciting event. While she did not have any specific best practices for handling those, she emphasized strong corporate governance framework, effective board oversight and comprehensive compliance framework as key safeguards to have in place.

Encouraging bankers to “learn from what’s going on around you,” Kiefer also stressed the importance of having a contingency plan for dealing with reputation risk, just in case.
“We think it’s important that you have a plan, have backup and a communication plan so if something does happen you’re not caught off guard,” she said.

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