September 14, 2005

Community banks ask for post-Katrina assistance

WASHINGTON (Reuters) - Banks on Wednesday asked Congress to
ease regulations for institutions in the U.S. Gulf Coast region
and take steps to boost confidence in the financial system in
the wake of Hurricane Katrina.

At a House Financial Services Committee panel hearing,
community banks and industry groups urged lawmakers and
regulators to ease "know-your-customer" rules that require a
certain level of client identification and documentation under
federal anti-money laundering laws, arguing that many hurricane
victims no longer have identification.

"Thousands of evacuated persons are seeking cash to provide
themselves with basic provisions," said McKinley Deaver,
executive director of the Mississippi Bankers Association.

"Banks are doing their part by accepting checks and opening
accounts to the extent possible. Bankers want to do the right
thing to help the victims of Hurricane Katrina, but must
balance regulatory and institutional concerns," Deaver said in
testimony prepared for the subcommittee hearing.

Diane Casey-Landry, president and chief executive officer
of America's Community Bankers, a trade group, said regulators
must give banks assurance they will not be cited for various
potential violations of the Bank Secrecy Act or the Patriot Act
for providing check-cashing services under relaxed standards.

She and others also said community banks in the Gulf Coast
region must be protected by legislation giving them
indemnification for bad checks.

"Community banks are being asked to cash government checks,
FEMA checks and other forms of assistance -- and they are --
but they cannot be left to foot the bill for bad checks," she
told the House subcommittee.

Republicans and Democrats on the subcommittee expressed
support for the banks and a proposal from Louisiana Republican
Rep. Richard Baker to assist financial institutions.

"I hope the regulators understand by now there is, I think,
unanimity on this committee that they should experiment, they
should be flexible, they should do everything reasonable to get
money into people's hands because people need money to eat and
to live and because that's the way we're going to bring the
economy back," said Massachusetts Democrat Rep. Barney Frank.


More than 100 community banks have offices in the areas hit
by Katrina. Many banks in the states most hurt -- Louisiana,
Mississippi and Alabama -- have asked the FDIC and other
regulators for assurances they will not be allowed to fail.

Casey-Landry called on the White House, Congress and
regulators to widely communicate to consumers that the U.S.
banking system, and the banks whose deposits are insured by the
Federal Deposit Insurance Corp., are safe and sound, to keep
customers from pulling their cash out.

The American Financial Services Association asked Congress
to temporarily increase the deposit insurance coverage limit to
$130,000 from $100,000 to improve confidence in institutions
and the financial system.

The Independent Community Bankers of America said lawmakers
should establish a special liquidity fund for banks in affected
areas through the Federal Home Loan Bank System, a system of 12
banks the provide funding for mortgage lending.

That group also said Congress should authorize $10 billion
in tax-exempt "Katrina redevelopment bonds" under a program
similar to New York City Liberty Bonds, authorize $10 billion
in Small Business Administration disaster loan authority, and
raise current bank-qualified municipal bond issuance limit to
$30 billion.