With much of lower Manhattan still smoldering, Washington policymakers tried to restore a sense of normalcy Thursday by pledging to re-start financial markets soon and clear check-laden planes for takeoff, but the edgy atmosphere here continued as lawmakers pushed aside routine hearings for secret meetings and regulators issued special advisories to banks.
Regulators were expected to release a joint statement Thursday advising banks to prepare for unexpected asset growth as Americans and businesses react to Tuesdays attacks. The release is expected to say some leeway will be provided these institutions, which could experience a temporary decline in their regulatory capital ratios.
Such a situation would occur if corporate borrowers make unusual draws on their existing lines of credit or request additional lines because of a perceived need for extra liquidity or if there are unusually large deposit inflows. The regulators recommend that if that situation occurs, banks should contact their primary supervisor.
The Federal Reserve Board also took several steps in the aftermath of Tuesdays attacks on the World Trade Center towers and the Pentagon building to maintain liquidity and keep financial markets running.
A Fed spokesman said Thursday that while borrowing from the discount window on the day of the attack was substantially elevated above normal levels, the system was coping successfully with the demand for extra cash. The lending proceeded smoothly, he said. The discount window will remain available to supply liquidity as needed.
The Fed was expected late Thursday to publish its weekly report on discount window borrowing, which will provide more information about the extent of the demand for cash in the days following the attack.
The New York Fed, which conducts the open market operations that the Fed uses to implement monetary policy, was shut out of its downtown Manhattan offices after the attack, but was operating from other facilities in East Rutherford, N.J.
The shutdown of all air travel had created concern that the nations check-clearing system would be crippled, but a Fed spokeswoman said trucks transported 65% to 75% of the checks that would have been flown on Tuesday and Wednesday. The Federal Aviation Administration gave its approval Thursday for the chartered aircraft that transport checks to begin flying again.
The spokeswoman stressed that while some operations had been temporarily slowed, We are continuing to provide credit for deposits and we are continuing to present checks to depository institutions as quickly as we can.
The Fed also said it reached an agreement with the European Central Bank that would help meet the need for dollars abroad without forcing foreign central banks to buy large quantities on the foreign currency markets a move that some said could distort exchange rates.
On Capitol Hill, lawmakers continued to postpone hearings on deposit insurance, money laundering, and other topics to focus on the impact of Tuesdays attacks on financial markets. The House Financial Services Committee met behind closed doors Thursday afternoon to be briefed by Fed Vice Chairman Roger Ferguson, Assistant Treasury Secretary for Financial Institutions Sheila Bair, and Securities and Exchange Commissioner Laura Unger. Financial Services Chairman Michael G. Oxley and Ranking Democrat Rep. John LaFalce were expected to discuss the results of the briefing at a press conference later in the day.
The four banking and thrift agencies separately issued guidelines to banks and examiners, asking them to be patient with borrowers and institutions in light of Tuesdays attacks.
The Office of the Comptroller of the Currency urged national banks to take prudent steps to help customers affected by Tuesdays attacks in New York and Washington such as extending loan payment terms, restructuring borrowers debt obligations, or easing credit terms for new loans to certain borrowers.
We are asking banks to recognize because mail service will be disrupted, they are going to be receiving payments from consumers late and bills are likely to go out late, OCC spokesman Robert M. Garsson said. We expect our banks to take this into account and not hit consumers with late fees or penalty interest payments that would raise consumer credit card interest rates into a higher bracket.
A Bank One Corp. spokesman said that the Chicago-based bank would ease its payment deadlines for its consumer loan and mortgage business by crediting payments according to the postmark date on the payment envelope, even if the payment itself arrives late.
Other banks seemed to be struggling to establish polices for late payments. Spokesmen from Discover Financial Services, Fleet Credit Card Services, Capital One Financial Corp., and MBNA Corp. said the matter was under consideration. Most expected a policy to emerge by the end of the day Thursday or early Friday.
A spokesman from Providian Financial Corp. explained that changing such policies required some infrastructure changes that took time to plan. We talked about it before the OCC directive came out, said Alan Elias, a Providian spokesman. Changing the system is a pretty large undertaking. He said that one possibility was to reverse any late fees. We will be showing great flexibility and understanding in terms of payments that will be coming in late. The entire company feels great sadness over what happened.
Examiners were told not to criticize such effort provided they are prudent and conducted with proper management oversight.
While examiners must be alert to, and critical of, any operational and managerial weaknesses that may have previously existed, they must also recognize when the institution is taking reasonable steps to deal with these external events, the Federal Deposit Insurance Corp.s guidelines said.
Accordingly, loan restructurings or extended terms of repayments or other steps taken to deal with the disaster and its aftermath should not be criticized as long as there is evidence of proper management oversight. Likewise, settlement issues, which may arise due to these external risks, should be monitored to ensure that they are conducted in a similar commercially reasonable fashion.