By Evan SparksThe haunting images this week of Houston’s flooded highways and neighborhoods bring to mind the devastation of New Orleans by Hurricane Katrina twelve years ago—almost to the day. The experience is certainly déjà vu for bankers who lived through Katrina, although thanks to the lessons of 2005, the financial industry is better positioned today to fuel recovery along the western Gulf Coast.
After Katrina flattened the Mississippi Gulf Coast and inundated New Orleans under several feet of water, the first challenge was rescuing survivors. But after that process, no one could get into New Orleans to return. Highway bridges had collapsed and National Guard units had closed remaining routes into the city.
Bankers who had evacuated remained on the outside looking in. After participating in volunteer rescue efforts with the famed “Cajun navy” of private recreational boaters on humanitarian missions, Guy Williams, president and CEO of New Orleans-based Gulf Coast Bank and Trust, had decisions to make. His banks’ locations were underwater, out of power and inaccessible. His employees and customers were scattered around the region.
One week after Katrina hit, Williams reopened his bank from a temporary space in Baton Rouge, 80 miles away. A week after that, he had opened a branch in a trailer in St. Bernard Parish, just east of New Orleans. It was exhausting work. Each weekday, he and his team would spend the day “working with customers and getting banking going. Then you’d work on gutting houses over the weekend, then start it again on Monday.”
Like New Orleans, with time and hard work Gulf Coast Bank and Trust recovered—and the banks’ recovery fueled the city’s. The lessons Williams and his fellow bankers learned from Katrina—paired with more developments in technology—have made banks better able to withstand disasters and rebound to meet customer needs. Some of these developments are:
1. IT redundancy and hardening
Some banks’ central IT systems were located in New Orleans in ground floor or mechanical spaces that flooded. With computers down—and inaccessible for repairs amid the flooding—customers could not get account information. “People didn’t know how to get to their money,” says Peter Gwaltney, who was president and CEO of the Louisiana Bankers Association at the time. “They couldn’t check their balances. They were concerned about whether they were going to have access to money.”
Bankers rolled up their sleeves and did what they needed to do. In Gulfport, Miss., Hancock Bank famously gave out $42 million in cash so that locals could start rebuilding. No account information was necessary; Hancock gave out tens of millions of dollars to people who had no proven connection to the bank with only hand-scrawled IOUs for documentation. (The loyalty was repaid; of that money, only $200,000 didn’t come back.)
And since then, “banks have learned about redundancy of information systems, of core processing and data systems, and how to serve customers,” says Gwaltney, now the head of the North Carolina Bankers Association.
Williams’ bank now has “multiple redundant failovers, one in Baton Rouge and one at a hardened site in Dallas with multiple redundant power sources,” he says. Employees can use VPN to securely access systems remotely.
2. Growth of mobile banking
When Katrina struck, the iPhone was a year away from launching and mobile banking—that is, any kind of mobile banking beyond clunky instructions by text message—was far off. Online banking was still relatively young, and fewer people used it. As a result, customers relied much more heavily on branches, ATMs and phone calls to access financial services—all of which were severely affected by Katrina.
Guy Williams’ electronic banking service never went down, he says with relief. “Because we had the electronic side, we at least had some account information. Some of our bigger competitors didn’t.” The ability to process at least some transactions remotely drove online and, eventually, mobile banking adoption faster at Gulf Coast Bank and Trust.
Today, with much more sophisticated mobile banking and payment options, customers have far more tools to manage their finances—even if branches are closed for a time. As long as customers can access a phone signal and charge their device, they are more resilient to disasters that temporarily close banks.
3. Improved liquidity management
The biggest immediate need after a major storm is hard cash. With credit card systems down, customers can get started on rebuilding soonest if they can pay cash. Before Katrina struck, “cash wasn’t positioned to the extent it could have been,” says ABA SVP Doug Johnson. And some banks came back to find their own vaults flooded and notes covered in muddy residue. Hancock Bank employees literally laundered cash at a laundromat to get it usable. Today, regulators suggest keeping vault cash in clear waterproof bags in vulnerable areas to minimize risks of contamination.
Williams turned to a friend who led another South Louisiana community bank. He had resumed operations in Baton Rouge by cashing a personal check, “and you can’t run a bank for long that way.” He got $900,000 from a fellow bank CEO with “no cashier’s checks, no wire ability, just a handshake and $900,000 in the trunk of my car,” he chuckles. “Another community bank helped us. Having good friends in the banking business makes all the difference in the world.”
Today banks plan ahead for post-storm cash management, positioning extra cash at ATMs and branches well in advance of storms and afterward as well. At First Community Bank in Corpus Christi, VP and IT officer Michael Mincey notes that ATMs saw high use for several days before Harvey hit. And the bank knew customers would need cash handy after the storm passed, especially if power and phone outages were prolonged.
After solving immediate liquidity needs and as insurance and federal aid checks come in, cash concerns will sort themselves out, Williams adds. “You’re going to be inundated with cash. Don’t hesitate to make loans. Lend to your small businesses that need liquidity to get going. Don’t make them do business plans, just make the loans.”
4. Proactive regulatory posture
“The regulatory agencies were caught a bit flatfooted during Katrina,” admits Gwaltney. But afterward, “they put systems in place and processes [that] give banks the flexibility and latitude to suspend payments. They understood that businesses were closed and people were out of their homes for extended periods of time.”
Bankers appreciate receiving in advance “the level of certainty that you can do these things,” says Johnson. With Harvey, regulators provided advance notice of relief, urging bankers to work with customers proactively and acknowledging that filings and reports may not be able to be completed on time. Earlier this week, the FDIC noted that since some Harvey evacuees may not have formal identification, banks can “immediately” amend their customer ID programs and obtain board approval “as soon as practicable.” ABA thanked the FDIC for proactively supporting banks’ emergency responses.
“To this day, the regulators know to communicate that early,” adds Gwaltney. “They really learned from the past.”
5. Operational response
Banks’ ability to handle the immediate aftermath of a storm has also improved. After Katrina, one immediate challenge was communication. Cell towers were down, and New Orleans area code numbers would not be able to make outgoing calls, regardless of location, for weeks to come. Bank employees were scattered. One bank had employees evacuate to 13 states, with no way to find or contact them, Gwaltney says.
While there were emergency systems such as the Government Emergency Telecommunications Service for landlines and Wireless Priority Service for cell phones, “the Fed substantially restricted use of these emergency systems to the largest systemically important financial institutions until Katrina,” says Johnson. “What we facilitated was making sure that all the state bankers associations had access to the systems so they could ensure their members were able to get a card as well.”
ABA VP Heather Wyson-Constantine encourages bankers to apply in advance for Telecommunications Service Priority, which enables participants after a disaster to receive priority for service restoration.
Johnson notes that the Financial Services Information Sharing and Analysis Center is much more mature today, with membership having grown seven-fold since 2005. The FS-ISAC has a full-fledged Business Resilience Committee and a standardized response playbook, and it also provides members with regular updates during a natural disaster. For example, FS-ISAC members can access a limited-access spreadsheet listing merchants, ATMs and other outlets that are operational. “That can be used by banks to identify where the gas stations are if they need gas or certain supplies,” notes Wyson-Constantine.
Even after Katrina, the industry was resilient. Louisiana saw no post-Katrina bank failures and just one merger spurred by storm recovery costs, says Gwaltney. And today—thanks to IT resiliency, mobile banking, better cash management, proactive regulators and a mature operational response—banks are better-positioned than ever before to meet their communities’ needs after a disaster.
As cleanup efforts continue in the aftermath of the hurricane, ABA is encouraging bankers to make a tax-exempt contribution to the Hurricane Harvey Relief Fund set up by the Texas Bankers Association and the Independent Bankers Association of Texas. Bankers can also continue to find updates and other resources related to Hurricane Harvey on aba.com.