BATON ROUGE - Louisiana community bankers are set today to make an unprecedented request to lawmakers and regulators for temporary unlimited deposit insurance.
In meetings with bankers here still struggling to recover from the devastation of Hurricane Katrina, several said some of their largest customers have already withdrawn funds and taken them to banks with branches outside the affected area. The bankers fear that unless the Federal Deposit Insurance Corp. publicly says it will guarantee any deposits, even those above the current $100,000 limit, more customers will do likewise.
"The first one that falls, the rest could go with it," said Michael Bush, the president and chief executive officer of the $100 million-asset Mississippi River Bank in Belle Chasse, La. "If we have a rush on our funds, we can't stem the tide on a long-term basis. We have to have something said to them from the FDIC that they will back us temporarily."
Mr. Bush said he has already lost his second-largest customer, who withdrew $1 million and shifted the funds to a bank outside the area.
Dan Digby, the president of the Community Bankers of Louisiana, said he would be flying to Washington late Tuesday to plead the community bankers' case to the FDIC and lawmakers in person. He is expected to attend a briefing today at the House Financial Services Committee on how Katrina has affected financial institutions. He also said he plans to meet with FDIC Chairman Don Powell.
"We don't want to be the dinosaurs killed by a natural disaster," Mr. Digby said. "If this were a big bank, the federal government would step in. We did nothing wrong. We did everything by the book."
At two emergency branch openings here Tuesday, bankers tried to be optimistic about keeping customers, but it was clear they were facing substantial obstacles.
James Hudson, the president and CEO of the $519 million-asset Omni Bank in Metairie, La., learned from a bank staff member during a ribbon-cutting ceremony that one of its largest customers was considering closing an account. Dressed in jeans and an Omni Bank T-shirt, Mr. Hudson appeared stressed, but he said he was hopeful.
"We are going to save that account," he said.
The bank has already taken steps to keep wary customers, such as not requiring any credit card or mortgage payments for at least a month.
Though Mr. Powell has noted that no bank has failed so far because of a natural disaster, bankers here are worried the already extraordinary circumstances make customer behavior unpredictable.
Officials at community banks - 19 of which are based in New Orleans - met throughout the weekend to discuss their situation, and they have been talking with state regulators. They were scheduled to meet Tuesday to discuss how quickly they can reopen branches in Jefferson Parish, La., which lost power but was not flooded.
But it is not clear if the FDIC could help even if it wanted to. A 1980 bill set the deposit insurance limit at $100,000 per account, and observers said Tuesday that they were not aware of a provision that lets the agency temporarily raise it.
A FDIC spokesman said there was no precedent for such an action, and that it was unclear if the agency had the authority to do so.
But lawmakers could intervene at any time. A spokesman for Rep. Richard Baker, who holds one of the top posts on the House Financial Services Committee, said the Louisiana Republican was reviewing the request and had passed it along to regulators.
In addition to the House committee briefing, the issue could be raised at a Senate Banking Committee briefing also scheduled for today, where regulators and trade groups will discuss their response to the hurricane.
Though the FDIC's ability to unilaterally raise deposit ceilings is questionable, regulators are far from powerless to help banks.
"They have other tools, in the FDIC's ability to provide direct assistance and the Fed's ability to use the lender-of-last-resort powers through the discount window, and other tools may be brought to bear, as well," said Chuck Muckenfuss, a partner in the Washington office of the law firm Gibson, Dunn & Crutcher LLP. "They require extraordinary findings, but these are extraordinary circumstances."
While Washington debates the matter, bankers here will be anxiously awaiting a response while they continue to try to recover. The staff at the $551 million-asset Gulf Coast Bank and Trust Co. in New Orleans stayed up late Monday evening just putting together five desks so they could open a branch in a strip mall here. They were operating the branch Tuesday without computers, which were stacked in boxes in the back.
"This is old-fashioned banking," said Guy Williams, Gulf Coast's president and CEO.
