Posts Tagged ‘Tennessee Floods’

Banking on Tennessee

Wednesday, May 12th, 2010
Banking on Rebirth

Banking on Rebirth

On page 140 of Prepare for the Worst, Plan for the Best: Disaster Preparedness and Recovery for Small Businesses (Wiley, second edition paperback, 2009), I informed readers that when the President declares a federal disaster, early withdrawal penalties on time deposits are waived as residents and businesses will need additional cash resources to recover. Many banks are unaware of this requirement, so I recommended that if your bank is not, get the cash as soon as you need it and seek reimbursement of any early withdrawal penalties, time permitting, when you are further along in your recovery efforts. I also recommended that you immediately request forbearance on any and all loans and credit facilities. In disaster recovery mode, you will need every inch of breathing room you can get.

So I was delighted to read that Bank of America is putting into effect a disaster relief program in the 42 Tennessee counties designated federal disaster areas by the Federal Emergency Management Agency. The Bank’s disaster relief program provides that small businesses in the affected counties may qualify to avoid early withdrawal penalties on bank certificates of deposit. They may also receive emergency credit line increases on their bank credit cards and may modify or extend payments on loans, credit cards or lines of credit. This is exactly the way to proactively help small business customers in the aftermath of a disaster.

And may I make an additional suggestion to the Bank of America? In the aftermath of a disaster, many small businesses with otherwise pristine credit histories will develop blemishes on their credit reports though no fault of their own. The business will inevitably have some customers that were unprepared for the disaster and will be delayed or default entirely on their obligations, causing some strain on the business. This is the time for banks to show some flexibility and take these factors into consideration for loan applicants.

At a time when bashing banks has become politically fashionable, we should remember how they support our communities. In banking on Tennessee, Bank of America is being true to its roots. A.P. Giannini, the founder of Bank of Italy, the institution that is the predecessor to the Bank of America, saw the opportunity represented by the devastating San Francisco earthquake of 1906. As other banks succumbed to panic, his made emergency loans to customers, mostly immigrant owned businesses, earning the bank their loyalty. This cemented the Bank’s position as a leading financier to the film and wine industries in northern California.

Nashville Floods in a Recession

Monday, May 3rd, 2010

When I worked in the reinsurance industry, “double-trigger” policies were the latest innovation for commercial policyholders. A powerful storm season concomitant with severe financial stress owing to a prolonged recession suggests a new market for this innovation. Double trigger policies offered more cost-effective coverage for linking uncorrelated risks. Consider an insurance company that covers policyholders in a seismically active area. It has sufficient capital reserves to pay expected claims from its own resources and so would prefer to forego more expensive reinsurance coverage to supplement its capital strength. But what if the earthquake occurs at a time when the value of the insurance company’s bond portfolio is impaired due to events in the financial markets? A double-trigger policy kicks in when two events, or triggers, occur: a defined financial event and an insurable peril. As these two risks are uncorrelated with one another, the premiums are lower than standard earthquake insurance alone. I wonder if such a product could be adapted for public insureds; certainly state and local governments are in need of assistance.

Consider that the flash floods caused by record levels of rainfall in Tennessee could not have come at a worse time. And they follow an unusually active storm season, such as the recent floods in Rhode Island, the worst in that state in the past two hundred years. At least 25 people have been killed in the southern states in thunderstorms, floods and possible tornadoes. Top Nashville tourism spots, such as the Grand Ole Opry and the Country Music Hall of Fame, are flooded. The news media have reported stories of local residents who are unemployed, lack funds for evacuation or temporary housing and could not pay for flood insurance. A disaster like this is doubly devastating when it occurs during a time of financial stress.