Although one can hope that the upcoming hurricane season will defy the predictions that have accompanied the start of the decades-long hurricane cycle, the banks in the Gulf Coast must do more than hope. They must plan, and plan for the worst.
According to the U.S. Department of Commerce's National Oceanic & Atmospheric Administration (NOAA), 2005 was the first season with 26 named storms, the first with 13 hurricanes, the first with three Category 5 hurricanes and the first with four major hurricanes hitting the United States. Should 2006 unfold along these lines, banks' crisis plans will be put into operation yet again. And again.
The difference between this year and last year is that planning for worst-case scenarios no longer requires a great leap of imagination. The ramifications of a major hurricane bearing down upon a vulnerable city, or even the impact of a mass evacuation, are all too clear.
Unlike businesses that deal primarily in physical assets, banks have a unique ability to protect their core operations from harm. Backups can be made, data distributed and operational recovery procedures initiated to ensure the rapid recovery of banking services to an affected area.
But restoring data is easier than restoring financial viability. There's no easy formula for how to help a region's economy recover after it has been devastated by a storm.
The fury of fiercer storm seasons threatens the asset quality of the Gulf Coast banks, particularly those that are geographically concentrated. Should the storm cycle continue as predicted, the region's banks will have to find some way to spread the risk. Strong industry leadership could start that discussion in 2006. --I.S.