Under normal circumstances, Gulf Coast Bank and Trust Co. in New Orleans would not temporarily finance a small company's payroll or allow a business customer to defer loan payments for several months.
But the chief executive at the $551 million-asset bank, Guy Williams, said he doesn't have much choice. Many small businesses in areas devastated by Hurricane Katrina still await disaster loans from the Small Business Administration, and until then banks like Gulf Coast have to step in, Mr. Williams said.
"It's been seven weeks, and small businesses are going to die because they cannot get the aid they need," he said. "There is going to be a huge intangible cost to this area of businesses that died that shouldn't have."
Mr. Williams is clearly frustrated with the SBA - and he is not alone. Residents, business owners, and lenders throughout the Gulf Coast have criticized the agency for being too slow to join the recovery effort. And the Government Accountability Office is looking into why, despite the demand, the SBA has made only a few dozen Katrina-related loans.
For now, bankers say they are trying to get the Gulf Coast economy moving by making loans they normally would not.
Hibernia Corp., for example, is offering businesses affected by Katrina and Rita temporary, unsecured lines of credit of up to $10,000 until SBA funding comes through. The lines of credit, which are made at the current prime rate and require no closing, have been popular with small "mom-and-pop" retail businesses, said Bill Alt, the New Orleans company's small-business segment manager.
"We saw a really big need in the market as customers have insurance and other funding alternatives coming, but there is a timing problem in getting them," Mr. Alt said Tuesday. "So we are bridging that gap with what they need immediately until the other proceeds come through."
Gulf Coast bankers are also upset with Congress for not acting on a flood insurance bill that they say is crucial to rebuilding much of the Gulf Coast or passing legislation that would encourage more lending in the hardest-hit areas. Banking delegations have made multiple trips to Washington in recent weeks to plead their case and intend to keep the pressure on Congress.
"It is really a bit shocking and disappointing the lack of help we are getting here," Mr. Williams said. "These communities will come back and we will rebuild. It's just going to be tougher to do it ourselves."
Eugene A. Ludwig, a former comptroller of the currency who is now the CEO of Promontory Interfinancial Network in Arlington, Va., said that regulators and Congress should be giving banks as much support as they need to encourage them to lend in the Gulf Coast.
He said the best solution would be for lenders to "piggyback" old loans of homes and businesses that were destroyed on to new loans for rebuilding. But in order to do under reasonable terms, Mr. Ludwig said, banks need the federal government's assistance in helping borrowers with interest payments, relaxing restrictions on loan terms, and giving these businesses tax breaks.
"Supporting banks makes good economic sense," Mr. Ludwig said. "Bank have a unique ability to make things better and really stimulate the economy."
At a hearing in Washington two weeks ago, Mr. Williams was especially critical of the SBA.
The SBA has said it plans to hire and train roughly 4,000 temporary lenders to help make direct disaster-assistance loans to Gulf Coast residents and businesses. It said that as of Friday it was more than halfway toward that goal.
But Mr. Williams said that the process is sluggish and suggested speeding it up by allowing the dozens of banks already certified as preferred lenders by the SBA - including his own - to process these loans for a minimal origination fee. The American Bankers Association backs Mr. Williams' idea and is urging the SBA to adopt it as a model for future disasters.
Though the SBA is known primarily for guaranteeing loans made by banks and other lenders, it also makes low-interest loans directly to residents and businesses victimized by disasters. It said last week that though it had received nearly than 54,000 requests for its disaster loans from Gulf Coast residents and business owners, it had approved less than 1,100 and cut only 58 checks.
Under Mr. Williams' proposal, banks that are preferred SBA lenders would treat these loans much as they do 7(a) loans. Applicants would come to the bank, and bankers would help them fill out the necessary paperwork and then underwrite the loan. Bankers say they would be able to arrive at a decision much quicker than the SBA. In many cases, they say, they would probably know the borrower and have a good idea of the value of his or her collateral, not to mention the ability of the business to repay the loan.
"For some unknown reason, they want to hire 4,000 lenders as opposed to using the existing bankers who could do it much more quickly and efficiently," Mr. Williams said.
Added Joseph C. Canizaro, the acting CEO at the $668 million-asset First Bank and Trust in New Orleans: "Banks have 10,000 people on the ground that know the area and can do the lending necessary. We have communicated that to Washington and are still hopeful we can work something out where the government will recognize the strength of the banking community."
For the time being the SBA intends to stick with its plan, but officials said it is considering the bankers' proposal, which would require no congressional approval.
"We need to do a follow-up to find out in a little more detail what they have in mind," said Herbert Mitchell, the agency's associate administrator for disaster assistance.
In the meantime, the SBA is trying to speed up the disaster-loan process. This week it introduced a streamlined application for loans of less than $100,000 for businesses that meet certain criteria.
In Mississippi, lawmakers were so concerned about businesses' access to capital that they passed a bill creating a short-term, state-run loan program.
The program was established during a special legislative session called to deal with Katrina-related matters. Under it, banks make interest-free bridge loans to businesses in the affected areas until SBA money or other funding comes through and then quickly sell the loans to the Mississippi Development Authority.
The program does not help homeowners, however.
Stewart Ramsay, the president and CEO of the $226 million-asset First Federal Savings and Loan in Pascagoula, Miss., said that about 80% of his bank's mortgage customers' homes were flooded, and that many of these customers did not have flood insurance.
House Democrats introduced a bill on Sept. 27 that would give retroactive flood insurance coverage on these homes, but the legislation faces an uphill battle because it is opposed by the Bush administration, consumer advocates, and even some financial services industry officials.
Mr. Ramsay said he is already preparing to write off dozens of loans.
"That would help us immensely," he said of the bill. "But we cannot place any bets on that happening, and we have to proceed like we are going to get very little help and it's just us and our customers left to work things out."
He is offering customers three months of loan deferrals and is working on new payment plans with those who did not completely lose their homes.
The flood insurance bill would provide retroactive coverage through the National Flood Insurance Program to those residents who pay 10 years' worth of past premiums and continue to pay into the program. This would apply to all flooded homes not in the designated floodplain, and therefore were not required to participate in the federally backed insurance program.
Peter Gwaltney, the chief executive of the Louisiana Bankers Association, said that getting the flood insurance bill passed is his group's No. 1 priority.
Congress "cannot walk away from it and cannot leave it for the banks and homeowners to work out," he said. "This is such a big issue, and it's got to be addressed."
But Bush administration officials have said the legislation is counterproductive.
"It's something we think would do real violence to the program," said Ed Pasterick, senior adviser with the mitigation division of the Federal Emergency Management Agency, the day the legislation was introduced. "If you decide that you are in fact going to help people recover, even if they don't have insurance, certainly do it directly through disaster insurance and don't distort the insurance program in the process."
Mr. Gwaltney said bankers are also hoping that Congress will do something to provide more liquidity to small banks. Banks are flush with deposits from customers' insurance proceeds, but these are temporary, and banks want more long-term liquidity so that they will be able provide all the necessary loans for rebuilding. If they have to charge off a good number of loans because of Katrina, they will have little funding left for new loans.
Bankers are considering proposing that the federal government set up a loan pool to which banks could sell many of their loans that are now delinquent because of Katrina. This would then give banks more money to make new loans.
Industry officials have been pushing the pooling idea for years, but it is not clear if it will gain traction in the aftermath of Katrina. Mr. Gwaltney said he has had "preliminary, exploratory conversations" with government and Wall Street officials. "They didn't shut the door in our faces," he said. However, he emphasized, "I don't want to overstate the likelihood of this happening."
In the meantime banks are finding their own ways to bring in deposits.
First Bank and Trust started offering a "Katrina Recovery" certificate of deposit and savings accounts that pay out higher-than-average rates - currently 4.25% on CDs - that are earmarked for Katrina-related loans. Mr. Canizaro said that the bank is marketing them throughout Louisiana and that they have attracted a great deal of interest so far.
"My goal is to get as liquid as possible so by yearend, when businesses really start coming back, we will be in a position to take care of them," he said.
Dryades Savings Bank in New Orleans, which is also a certified community development financial institution, has attracted a stream of new, stable deposits from nonprofits, businesses, and individuals all over the country that support the bank's mission to serve lower-income communities.
Virgil Robinson Jr., Dryades' president and CEO, said that the $111 million-asset thrift is looking for deposit sources elsewhere because he is not counting on the government to do anything that will directly benefit banks on the Gulf Coast.
"I really don't think we are going to get assistance from the federal government," he said. "When Katrina moves from the front page to third page of the third section, then there is a high probability that we are going to be forgotten by the government."
