Hurricane Gustav hit Louisiana on Monday, September 1, 2008, flooding parts of the state’s southern coastline near New Orleans. Although a large and powerful storm, Hurricane Gustav did not wreak damage comparable to Hurricane Katrina in August 2005. Various press reports indicated that while there was considerable wind damage and widespread power outages, basic infrastructure remained intact. At this time, three additional storms are being tracked because of their potential impact on the United States. The hurricane season runs until November 30, 2008.
In light of these developments, the Federal Reserve is reaffirming its long-standing policy of using available regulatory flexibility to facilitate the recovery efforts of affected banking organizations. Banking organizations supervised by the Federal Reserve are encouraged to work with Reserve Bank supervisory and operations staff to resolve any issues related to operating problems resulting from Hurricane Gustav or any subsequent storms.
The Federal Reserve recognizes that banking organizations may have to take prudent steps to modify, extend, or restructure existing loans in areas affected by 2008 hurricanes. The Federal Reserve encourages banking organizations to work with borrowers and other customers in affected areas. Banking organizations’ efforts to work with borrowers in communities under stress, if conducted in a reasonable manner, are consistent with safe and sound banking practice, may contribute to the health and recovery of the local communities, and are in the public interest.
Banking organizations in the affected areas may find that their levels of delinquent and nonperforming loans will increase. Consistent with long-standing practices, the Federal Reserve will consider the unusual circumstances these organizations face in reviewing their financial conditions and determining any supervisory response.
As a reminder, the Truth in Lending Act and the Board’s Regulation Z normally provide a consumer with the right to rescind certain credit obligations secured by the consumer’s principal dwelling for three days after becoming obligated. However, consumers may modify or waive their right to cancel a transaction to meet a "bona fide personal financial emergency." Accordingly, consumers experiencing a bona fide personal financial emergency due to a hurricane may waive their right to rescind by providing a brief written, signed and dated statement referencing the emergency and indicating that they need the funds immediately.
In accordance with Regulation BB, which implements the Community Reinvestment Act (CRA), and existing guidance, the Federal Reserve will favorably consider activities that revitalize or stabilize a designated disaster area, but will give greater weight to those activities designed to benefit low- or moderate-income individuals or areas. Other activities, such as providing affordable housing or community services to low- or moderate-income individuals, may also qualify for community development consideration under CRA.
The Federal Reserve is aware that localized damage could be sufficiently great to adversely affect the ability of certain banking organizations to submit accurate and timely regulatory reports to the Federal Reserve, including, for example, the FR Y-9 and FR Y-11 for bank holding companies, and Call Reports for state member banks. Banking organizations that expect to have difficulty submitting accurate and timely data because of hurricane damage should contact their Reserve Bank. The Reserve Bank will take into consideration any causes beyond the control of a reporting institution in determining an acceptable filing delay.
Hurricane damage may lead affected state member banks to temporarily cease some or all of the operations of a branch, or temporarily move some branch operations to new locations or shared facilities. Any state member bank forced by a hurricane to temporarily relocate some or all of a branch’s operations to new locations or shared facilities should advise its Reserve Bank accordingly. The Federal Reserve will not require an application for such temporary relocations or facilities sharing. However, once the bank determines its ultimate plans for the operations of a displaced branch it should consult further with its Reserve Bank concerning any application or notice requirements.
For additional information regarding general supervisory issues please contact Kevin M. Bertsch, Deputy Associate Director, Community Banking Organizations, Division of Banking Supervision and Regulation, (202) 452-5265, or Robert T. Maahs, Assistant Director, Regulatory Reports, Division of Banking Supervision and Regulation. For consumer-related issues please contact Tim Burniston, Assistant Director, Division of Consumer and Community Affairs, (202) 452-3488.