Board of Governors of the Federal Reserve System

The purpose of this letter is to highlight the supervisory practices that the Federal Reserve can employ when banking organizations and their borrowers and other customers are affected by a major disaster or emergency.  Major disasters include hurricanes, tornadoes, floods, earthquakes, blizzards, and other natural catastrophes, as well as fires and explosions.¹  An emergency is an instance in which federal assistance is necessary to save lives and protect property, public health, or safety.²

In general, the provisions of this letter are triggered when the President of the United States makes a major disaster or emergency declaration.³  A catastrophe that results in such a declaration can hinder affected banking organizations from effectively serving their borrowers and other customers.⁴  It also may present challenges for such organizations in complying in a complete and timely manner with their regulatory obligations. 

In this context, the Federal Reserve is reaffirming its long-standing policy of using available flexibility, consistent with statutory and regulatory requirements, following a major disaster or emergency to facilitate the recovery efforts of affected banking organizations.  When a major disaster or emergency is declared, the Federal Reserve Banks should promptly communicate the availability of regulatory relief to banking organizations with operations in the designated area.  In addition to using normal communications channels following a disaster or emergency, Federal Reserve Banks should consider using the System's Emergency Communications System, which allows banking organizations to receive important messages from their respective regulatory agencies.⁵  Banking organizations supervised by the Federal Reserve are encouraged to work with responsible Federal Reserve Bank supervisory and operations staff to resolve any issues related to operating problems resulting from a major disaster or emergency.

In addition, Federal Reserve Banks may become aware of localized emergencies which disrupt banking services to a limited area or affect a few banking organizations but do not result in a Presidential declaration.  In these situations, Federal Reserve Banks should rely on this letter for guidance on an appropriate response and consult with Federal Reserve Board staff as necessary.

Working with Borrowers and Other Customers

In the event of a major disaster or emergency, the Federal Reserve encourages banking organizations to work with affected borrowers and other customers.  Banking organizations' efforts to work with customers in communities under stress may contribute to the health and recovery of these communities.  Such efforts serve the long-term interests of the affected banking organizations, provided such efforts are conducted in a reasonable manner with proper controls and management oversight, and are consistent with safe and sound banking practices.  These efforts may include: 

• Waiving automated teller machine (ATM) fees for customers and non-customers
• Increasing ATM daily cash withdrawal limits
• Waiving overdraft fees
• Waiving early withdrawal penalties on time deposits⁶
• Waiving availability restrictions on insurance checks
• Easing restrictions on cashing out-of-state and non-customer checks
• Easing credit terms for new loans
• Increasing credit card limits for creditworthy customers
• Waiving late fees for credit card and other loan balances
• Offering payment accommodations, such as allowing loan customers to defer or skip some payments or extending the payment due dates, which would avoid delinquencies and negative credit bureau reporting caused by disaster-related disruptions

The Federal Reserve realizes that the effects of a disaster on local businesses and individuals are often transitory, and prudent efforts to adjust or alter terms on existing loans in affected areas should not be subject to examiner criticism.  Banking organizations should perform a comprehensive review of an affected borrower's financial condition in an effort to implement a prudent loan workout arrangement.  When conducting examinations and other supervisory activities, examiners will consider the unusual circumstances that banking organizations are facing in the affected areas.  A banking organization that implements prudent loan workout arrangements will not be subject to criticism for engaging in these efforts even if the restructured loans have weaknesses that result in adverse classifications or credit risk grade downgrades.

For example, a banking organization may work with a borrower to extend the terms of repayment or otherwise restructure the borrower's debt obligations.⁷  Such cooperative efforts can ease pressures on troubled borrowers, improve their capacity to service debt and strengthen the banking organization's ability to collect on its loans.  During the declared disaster or emergency and immediate recovery period, banking organizations may also ease documentation requirements or credit-extension terms for new loans to affected bank customers, consistent with prudent banking practices.  Such easing may help borrowers to recover their financial strength and place them in a better position to service their debt. 

Financial Condition Review, Supervisory Response, and Regulatory Relief

Banking organizations in the affected areas may find that their levels of delinquent and nonperforming loans will increase.  Consistent with long-standing practices, the Federal Reserve will consider the unusual circumstances these organizations face in reviewing their financial conditions and determining any supervisory response.  Several types of regulatory relief are also available to facilitate recovery in areas that have been declared a major disaster by the President. 

The Federal Reserve Board and the other federal banking agencies have the authority to waive real estate-related appraisal regulations in certain instances.  More specifically, the Depository Institutions Disaster Relief Act of 1992 (DIDRA)⁸ provides the agencies with the authority to waive their real estate appraisal regulations for real estate-related financial transactions involving property affected by a major disaster.⁹  Consistent with the DIDRA, the Federal Reserve Board will consider issuing such a waiver if regulated institutions encounter difficulty in obtaining appraisals for transactions that would aid reconstruction and rehabilitation in designated areas.  Banking organizations are encouraged to notify the responsible Federal Reserve Bank if they encounter difficulties in complying with the Federal Reserve Board’s appraisal regulations as a result of damage caused by a major disaster.  If applicable, Federal Reserve Board staff, in consultation with the responsible Federal Reserve Bank, will take the steps necessary for the Federal Reserve Board to grant appraisal waivers under the DIDRA, including meeting Federal Register notice requirements. 

In accordance with Regulation BB, which implements the Community Reinvestment Act (CRA) and related guidance, the Federal Reserve will consider activities that revitalize or stabilize a designated disaster area in evaluating a bank's record of helping to meet the credit needs of its community, even if the loans, investments, or services provided are to middle- or upper-income individuals.  Examiners will consider bank activities related to disaster recovery in a designated area for 36 months following the date of designation or longer if a demonstrable community need in a particular disaster area requires an extension of the period.¹⁰  However, examiners will give greater weight to activities designed to benefit low- or moderate-income individuals or areas. 

With regard to the conduct of safety and soundness or consumer compliance supervision, the Federal Reserve will work with affected banking organizations in scheduling on-site examinations or inspections to minimize disruption and burden.  Moreover, the Federal Reserve will use appropriate discretion in establishing the scope and frequency of examinations and inspections, consistent with principles of safety and soundness and applicable legal and regulatory requirements. 

Submission of Regulatory Reports

The Federal Reserve recognizes that a major disaster or emergency may adversely affect the ability of some affected banking organizations to submit accurate and timely regulatory reports to the Federal Reserve, including, for example, the Consolidated Financial Statements for Bank Holding Companies (FR Y-9C), Financial Statements of U.S. Nonbank Subsidiaries of U.S. Bank Holding Companies (FR Y-11), and Call Reports.  A banking organization having difficulty submitting accurate or timely data because of a major disaster or emergency should contact the responsible Federal Reserve Bank.  The Federal Reserve does not expect to take supervisory action against a banking organization that takes reasonable and prudent steps to comply with the Federal Reserve Board's reporting requirements but is unable to make timely filings due to a major disaster or emergency.

Temporary Changes to Branch Operations or Facilities

A major disaster or emergency may lead an affected state member bank or U.S. branch of a foreign banking organization to temporarily curtail or cease the operations of a branch or temporarily move some or all of a branch's operations to alternate locations.¹¹  In such instances, banking organizations should advise the responsible Federal Reserve Bank of these temporary changes.  The Federal Reserve will not require an application for such temporary closings or relocations.  However, once the bank or U.S. branch of a foreign banking organization determines its ultimate plans for the operations of a displaced branch it should consult further with the responsible Federal Reserve Bank concerning any application or notice requirements.¹²

Customer Identification

The Federal Reserve recognizes that many persons displaced or adversely affected by a major disaster or emergency may not have access to their normal identification and personal records.  Banking organizations rely on such identification to comply with Bank Secrecy Act (BSA) Customer Identification Program (CIP) requirements when opening a new account¹³ and with other anti-money laundering requirements.  For this reason, the Federal Reserve reminds banking organizations that the CIP requirements of the BSA provide the flexibility to use documents, non-documentary methods, or a combination with which to verify a customer's identity.  Applicable regulations do not require a banking organization to verify a customer's identity prior to opening an account, so long as the organization does so within a reasonable time after the account is opened.

The Federal Reserve encourages depository institutions to use non-documentary verification methods for new affected customers that may not be able to provide standard identification documents, as permitted under the regulation.  Non-documentary methods may include comparison of information provided by the customer with information obtained from a consumer reporting agency, public database, or other source, or by checking references with another financial institution.

To help protect the interests of customers and communities in the affected areas, banking organizations should continue to be alert to indications of fraud or other criminal activities and to report suspicious activity in accordance with existing protocols.  Banking organizations may also refer to the Financial Crimes Enforcement Network's Advisory FIN-2006-A001, "Guidance to Financial Institutions Regarding Hurricane-Related Benefit Fraud," which provides information about potential fraudulent schemes during natural disasters.

Coordination of Regulatory Relief Efforts

The Federal Reserve Banks should coordinate their regulatory relief efforts with the appropriate state offices, including state bank supervisors.  Moreover, Federal Reserve Banks should coordinate, as appropriate, with other Federal Reserve Banks in cases where a declaration of a disaster or emergency covers areas in more than one Federal Reserve District.  For example, this would occur when flooding along the Mississippi River or a hurricane affects several states.

If banking organizations have questions about the guidance set forth in this letter, they are encouraged to contact the responsible Federal Reserve Bank.  For additional information regarding general supervisory issues please contact Kevin Bertsch, Associate Director, Supervisory Oversight, at (202) 452-5265, in the Division of Banking Supervision and Regulation. For consumer compliance-related issues please contact Phyllis Harwell, Assistant Director, at (202) 452-3658, in the Division of Consumer and Community Affairs.  In addition, questions may be sent via the Board's public website.¹⁴

Notes: