Financial Industry Reacts to Attacks on U.S.

By Katalina M. Bianco, J.D., Writer/Analyst, CCH Federal Banking Law Reporter and Bank Compliance Guide, Co-Author, CCH Financial Services Modernization-Gramm-Leach-Bliley Act of 1999-Law and Explanation and CCH Federal Privacy Rules for Financial Institutions; Contributing Author, CCH Focus.

n the aftermath of terrorist attacks on the World Trade Center in New York and the Pentagon on September 11, 2001, the financial services industry swiftly moved to reassure industry members and the public that the banking system will continue to operate smoothly and efficiently. Although U.S. stock markets remained closed on the day after the attacks, the Federal Reserve Board hastened to announce on September 12 that it is open and operating and that “the discount window is available to meet liquidity needs.” The Federal Deposit Insurance Corp., in a statement issued the same day, said that the public “can rest assured that deposit insurance is in full force — money is safe in an FDIC-insured account.”

Fueling public confidence, the Council of Federal Home Loan Banks informed the Independent Community Bankers Association on September 12 that the FHLBank of New York was up and running at an alternate site in New Jersey. Bankers were advised that they could reach Member Services at the FHLBNY at (908) 272-8500. The website of the bank is also operational at www.fhlbny. com. The FHLBank of New York was located in No. 7 World Trade Center. Although that building collapsed late on September 11, the Council stressed that all FHLBNY personnel were safely evacuated from the building.

NATIONAL BANKS CLOSED AT OWN DISCRETION

The Office of the Comptroller of the Currency responded by issuing a proclamation allowing national bank offices affected by the emergency situation to close at their discretion. The OCC also stands ready to authorize banks to open temporary branches as needed. Comptroller John D. Hawke Jr. said that he expected that only those bank offices directly affected by the emergency would close. Those offices should make every effort to reopen as quickly as possible to address the banking and liquidity needs of their customers, he added.

Hawke said he is confident that national banks will take account of any unusual demand for cash and currency among their customers and will make appropriate arrangements to meet those needs. A separate release by the OCC encouraged banks to exercise “prudent efforts” to make credit available and to adjust or alter terms on existing loans for customers affected by the disaster and related problems. The agency further said that such prudent efforts to work with borrowers should not be subject to bank examiner criticism.

The OCC urged national banks to consider various alternatives that may include:

extending the terms of loan repayments;
restructuring a borrower’s debt obligations; and
easing credit terms for new loans to certain borrowers, consistent with prudent banking practices.

In particular, national banks that rely heavily on mail service for customer billing and loan payments may experience a temporary slowdown of mail delivery as a result of the initial cessation and possible continued limitation of U.S. commercial airline traffic, the OCC said. As a result, customers may not be billed on a timely basis, and customer payments may be delayed in the mail. The agency “strongly encourages” lenders to provide additional time or grace periods before assessing late fees or initiating default or penalty pricing. These measures could help borrowers recover their financial strength and enable them to be in a better position to repay their debts, the OCC noted, contributing to the health of the local community and the long-term interests of banks and their customers.

SWAP ARRANGEMENT

The Federal Reserve Board announced on September 13 that to facilitate the functioning of financial markets and provide liquidity in dollars, the Fed and the European Central Bank have agreed on a swap arrangement. Under the agreement, the ECB would be eligible to draw up to $50 billion, receiving dollar deposits at the Federal Reserve Bank of New York; in exchange, the FRBNY would receive euro deposits of an equivalent amount at the ECB.

The ECB will make these dollar deposits available to national central banks of the Eurosystem, the Fed said. The Eurosytem banks would use them to help meet dollar liquidity needs of European banks whose U.S. operations have been affected by the disturbances in the United States. This swap line will expire in 30 days.

GUIDANCE FOR THRIFTS

The Office of Thrift Supervision released guidance on September 12 that outlines steps thrifts can take to assist customers affected by the attacks on the United States. The guidance is designed to ensure that institutions do all that they can to help their customers cope with financial obligations under these difficult circumstances.

“Efforts by thrifts to modify existing loans to borrowers affected by the terrorist attacks will be given favorable consideration by thrift examiners,” said OTS Director Ellen Seidman. “OTS understands the effects of these attacks on individuals, families and businesses.”

The OTS’s release emphasized that it is OTS policy not to criticize prudent efforts to either adjust payment terms or to extend new loans to customers affected by this disaster. The agency encouraged all thrifts that have customers affected by the events of September 11 or by resulting delays in mail delivery and other services to:

consider temporarily waiving late payment charges as well as penalties for checks returned for insufficient funds where it appears that such late payments and nonsufficient funds conditions resulted from delays beyond the customer’s control;
consider waiving penalties for early withdrawal of savings in circumstances where a customer has demonstrated a need for the funds resulting from the events of September 11;
consider a prudent restructuring of borrower’s debt obligations by altering or adjusting payment terms;
avail themselves of programs offered by the FHLBanks and FRBanks; and
consult with OTS regional offices on other ways in which thrifts may assist affected customers.

Thrifts that need further guidance should contact their regional office. Additional information also is available on the OTS’s website at www.ots.treas.gov.

“A GRIM AND TERRIBLE DAY”

FDIC Chairman Donald E. Powell released a statement on September 12 indicating that, with the exception of its New York City offices, the FDIC was “open for business.” He stressed that the agency had received no reports of harm to any of its “colleagues” arising from the previous day’s attacks.

“September 11 was a grim and terrible day for our nation. My thoughts and prayers are with the families of the victims of these diabolical acts,” Powell said. “I have often heard that the people of the FDIC rise to any challenge. Yesterday, I witnessed that. In particular, our security staff went beyond the call of duty to assure the safety of our people and property. I commend them, and I thank all of you for your unparalleled professionalism during this time of trial,” the Chairman concluded.

ABA STATEMENT

The American Bankers Association issued a statement on the state of the banking industry in the wake of the terrorist attacks on New York City and Washington, D.C. Speaking for the ABA was Donald G. Ogilvie, executive vice president of the association.

“While it would be hard to consider these past 24 hours as business as usual, the banking system continues to operate smoothly, deposits are protected and customers worldwide have access to their funds,” Ogilvie said. Banks are required to have disaster-recovery plans and multiple backup systems and have addressed past challenges by working with bank regulators to ensure public confidence as well as liquidity in the financial system, he said. Those plans and procedures have been and will continue to be in place until the country returns to normal, he said.

NAMIC COMMENTS ON TRAGEDY

Representing the insurance industry, the National Association of Mutual Insurance Companies released a statement on the events of September 11 urging its member companies and staff to support victim relief efforts in every way possible. NAMIC says its staff is researching organized relief efforts and will make further information available on NAMIC Online at www.namic.org. Areas being researched include blood donation and financial support.

TAX RELIEF

Treasury Secretary Paul H. O’Neill held a brief press conference on September 13 in Washington, D.C. to announce that they are taking additional administrative steps to provide tax relief for victims of the terrorist attack.

O’Neill expressed his deepest sympathies for the families of the victims of this tragedy. He said that while the destruction is horrible and detestable “America’s dynamic economy is not located in any one place. Innovation and productivity are found in every factory and farm, every laboratory, every financial institution, every small business and every home office across America. That spirit cannot be destroyed.”

Without revealing the specific measures contemplated by the Treasury, O’Neill said that the “Treasury and the IRS are taking steps to minimize the distraction of tax issues raised by this disaster.”