Banks got a refresher course on how to prepare for a government shutdown.
Lawmakers are poised to pass a short-term spending bill that will reopen the federal government and end the first shutdown in more than four years. The plan, however, provides only temporary relief, leaving open the possibility of another shutdown in early February.
The banking industry, by promoting stability and flexibility for borrowers, made the most of a chance to foster goodwill with customers, industry experts said.
“When a business or organization anticipates an organization’s problems, that will lead to gratitude, respect and ultimately loyalty,” said Marian Stern, a principal at Projects in Philanthropy, a consulting group. “I know that isn’t the motivation here, but it is a worthwhile and important secondary outcome.”
A government shutdown can hit banks in several ways, including a spike in customers who may not receive paychecks to bottlenecks with mortgage originations and funding for Small Business Administration loans.
The pain is particularly acute for Washington-area institutions that work extensively with government contractors.
“Uncertainty for business is a real impediment,” said David Pijor, chairman and CEO of FVCbank in Fairfax, Va. “There was a certain sense of euphoria after tax reform that [it] would impact [customers’] cash flow and ability to service debt. But uncertainty with your government contract makes it difficult to plan.”
Executives at the $1 billion-asset FVC, which largely focuses on commercial clients, including government contractors and subcontractors, began internal planning for a shutdown a month ago by meeting with lenders to understand what customers might need if the government closed. During such times, FVC is usually willing to work with clients by providing loan deferments or extending and modifying lines of credit, Pijor said.
During the 16-day shutdown in October 2013, roughly a dozen clients ended up working with the bank, which didn’t record any losses tied to the shutdown, Pijor said.
“As a community bank, it goes without saying that we try to be responsive to borrowers and customers in our communities,” Pijor said. “We have a lot of flexibility. … If we see that something is being impacted because of unintended consequences, we ask, ‘What can we do to help our customers?’ We’ve always done this.”
Such an attitude could serve a bank well by helping create loyalty with a customer, who may then share their positive experience with others, Stern said.
A shutdown provides banks with opportunities to discuss strategic plans with impacted customers, Stern added. Unlike a natural disaster, when banks jump in to help with immediate needs, the negative impact from a shutdown may not be felt for some time. That gives banks and customers a chance to work on solutions.
Access National in Reston, Va., started discussing plans on how to handle a government shutdown last week, said President and CEO Michael Clarke. Loan officers were instructed to reach out to customers on Monday, primarily through email, to let them know that Access was willing to work with them.
The $2.8 billion-asset Access helped a handful of customers during the 2013 shutdown, Clarke said. During shutdowns, some of the bank’s customers were focused on making sure they met payroll for their employees, he said.
“Our customers are generally [providing] professional services for the government, so their main asset of their business residues in their employees,” Clarke said. “Keeping payroll running is the most important thing. Then you have the affects that allows the individuals to maintain their households and make personal payments.”
Clarke, who has been making loans to businesses that work with the government for 35 years, heard from investors during the 2013 shutdown about whether it would affect Access’ bottom line. While the bank has never experienced a loss due to a government shutdown, it would be possible if one lasted long enough, he said.
Regulators treat Access’ focus in the Washington area, including its work with government contractors, the same as any other concentration, Clarke said. The bank’s experience, however, helps it prepare and mitigate potential risks.
“It’s remarkable the amount of impact" a shutdown can have, Clarke said.
A number of other banks were prepared in case the shutdown lasted through Feb. 1 paydays. While that deadline was averted, it could still be an issue in the middle of February should lawmakers again fail to keep the government open.
USAA planned to offer no-interest payroll-advance loans to its military customers, a spokesman said. The $80 billion-asset company offers other solutions, such as special payment arrangements, to help service members who face financial hardship if a paycheck is missed.
Capital One Financial in McLean, Va., has protocols that allow it to waive fees on overdrafts, early-withdrawal penalties for CDs and late fees on loans and credit cards, a spokeswoman said. It would also work with individual customers.
Bank of America was also set to work with clients on a case-by-case basis to help address any financial needs, a spokesman said. The Charlotte, N.C., company also has a client assistance program to help people facing a financial hardship.