WASHINGTON - Under pressure from Louisiana bankers to boost public confidence in the health of local institutions affected by Hurricane Katrina, federal officials offered formal assurances that banks will not fail.
"If an institution is failing because of this disaster, the federal government will stand behind that institution," Rep. Spencer Bachus said after a briefing Wednesday with the Federal Deposit Insurance Corp. and other regulators on Capitol Hill.
The Alabama Republican, who leads the House subcommittee with jurisdiction over financial institutions, said lawmakers and regulators were determining Wednesday exactly what the government will do. But the bottom line, he said, is that banks and their customers affected by the hurricane that struck the Gulf Coast on Aug. 29 "need assurance from the FDIC that they will stand behind them."
Specifically, he said officials are weighing whether an emergency increase of deposit insurance coverage levels above the current $100,000 per account is needed, "or whether just a letter from the FDIC, a public assurance to the affected community that the federal government will stand behind their insurance institutions," would be enough.
"We expect some proposal in this regard very soon," he said. "Whether it goes to a letter of assurance or legislation, I don't know at this point. Maybe it's just an expression that the banks are sound. We're working on something right now."
Rep. Barney Frank, the lead Democrat on the House Financial Services Committee, warned that if the federal government does not act, smaller banks "who do most or all of their business in the affected areas will be driven out of business."
"I do not think we want this hurricane to … [result in] greater and greater concentration and fewer and fewer community banks," Rep. Frank said. "The argument for increasing the deposit insurance limit, particularly in this crisis, is a very strong one."
Rep. Frank favors giving the FDIC authority to raise coverage to whatever level is needed to stabilize smaller banks, a spokesman said.
The comments came as bank, thrift, and credit union regulators briefed the Senate Banking and House Financial Services committees on the health of affected institutions after the storm. Over all, they maintained that banks are doing well.
"The banking system has shown considerable resiliency," said John Lane, the FDIC deputy director of risk management.
Additionally, regulators said they are considering delaying safety-and-soundness, community-reinvestment, and other regularly scheduled exams for the affected banks. They also are telling examiners to look for efforts in loan portfolios to modify loans in the affected areas, take disaster-relief measures into account when making Community Reinvestment Act assessments, and allow reasonable deficiencies in loan documentation.
Regulators said the demand for currency and deposit withdrawals had increased, but not to levels that concern them.
"Obviously some deposit outflows are occurring, as we've seen with other disasters," Mr. Lane said after the House briefing. "There is always a short-term outflow, but as things stabilize and become better known, oftentimes these flows are reversed."
Jeffrey C. Marquardt, the Federal Reserve Board's deputy director of reserve bank operations and payment systems, said currency demand is "moderately elevated."
On Friday, cash withdraws in the affected areas totaled $206 million. Daily withdraws in early September are usually around $40 million in the region, he said.
Mr. Marquardt said that reserve banks including those in Birmingham, Ala.; Jacksonville, Fla.; Memphis, and Houston are supplying cash and are expected to meet the demand. They have transported $7.6 billion in $20 bills to the affected areas, he said.
But some Louisiana representatives said they want regulators to do more.
Dan Digby, the president of the Community Bankers of Louisiana, came to Washington to meet lawmakers and FDIC Chairman Don Powell. Though Mr. Digby was expected to ask the FDIC to grant unlimited deposit insurance, he said bankers in the area could be satisfied if regulators focused on increasing public confidence instead.
"I am going to ask for a statement from Chairman Powell supporting all banks in the affected areas," Mr. Digby said.. "I'm not asking him to increase the deposit insurance coverage from $100,000 to another limit. I'm asking him to say, 'The FDIC will stand behind these banks.' "
The FDIC issued a press release Wednesday that was clearly directed at soothing nervous bank customers. Though the statement noted some "disruptions in banking services," it emphasized that customers' money was safe.
"Consumers, as always, can rely upon the guarantees provided by the FDIC," Mr. Powell said in the press release. "Their federally insured deposits are fully protected; no depositor has ever lost one cent in a federally insured account."
Mr. Powell is already planning to visit the affected Gulf areas sometime next week. The FDIC is also planning to launch an advertising campaign to try to maintain confidence in institutions.
In an interview Wednesday, Mr. Powell, a former Texas community banker, said he is sympathetic to bankers who say that large customers are closing accounts and taking their money elsewhere. He said the FDIC does not have legal authority to raise the deposit insurance, but that policymakers should consider whether it makes sense to do so.
"Clearly it is a consideration that should be examined," Mr. Powell said. "These are extraordinary circumstances."
But he said the FDIC would need more data for him to make a recommendation. "I would need to know more facts. What's the risk associated to the fund? How many banks are we talking about?" he said.
Meanwhile private-sector groups were poised to help out. Promontory Interfinancial Network LLC announced it would waive its sign-up fee, as well as any transaction free, for a limited time to help banks in Louisiana, Alabama, and Mississippi.
The banks that join the network can offer customers $20 million of FDIC-insured coverage that they can keep at no charge through the network's certificate of deposit account registry service. Banks in the tristate area that are already members of the network can also conduct such transactions at no charge. The group said it would waive transaction fees for banks in those areas until Oct. 12.
"These steps should ease at least some of the pressures on banks affected by Hurricane Katrina as they begin recovering from the crisis," said Eugene A. Ludwig, Promontory's chairman, in a press release. "We want to do our part."
