As we in Louisiana know, natural disasters are an unfortunate and often disastrous fact of life. We’re thinking of our credit union brethren as they face the aftermath of Hurricanes Francine, Helene and Milton.
Whether it be wildfires and earthquakes on the West Coast, hurricanes on the East and Gulf coasts, or tornados on the Central Plains, disasters like these are a relatively regular staple of life.
Credit unions must have the capacity to manage the needs of members affected by these disasters. The damages of the two most recent disasters, Hurricanes Helene and Milton, are projected to be measured in the hundreds of billions of dollars, so members’ financial needs are substantial.
The first challenge is that as members grapple with the financial aftermath of a disaster, credit unions often see a spike in loan delinquencies and defaults. Unemployment rates may rise as businesses close or reduce their workforce, leading to decreased income for many members. This situation can force individuals to prioritize immediate expenses over loan repayments.
That is why some credit union leaders, such as LeeAnn Persick, vice president of lending at Xplore Federal Credit Union, are suggesting “skip-a-pay” and loss draft assistance programs previously implemented during the coronavirus pandemic to be used in response to natural disasters, according to Luminate (formerly Louisiana Credit Union League).
Other credit union leaders have discussed programs regarding loans on houses that have been destroyed. Jeff Claire, chief lending officer at New Orleans Firemen’s Federal Credit Union, laid out his credit union’s plan for Luminate.
“When homes are classified as a total loss in communities facing widespread devastation, we generally provide a two- to three-month automatic extension on the loan, and we waive the escrow to ease the burden on our members.”
These types of programs are critical to serving members impacted by natural disasters.
According to CBS Miami, the value of insurance claims in Florida alone as a result of Hurricane Helene topped $900 million. The total insurance claims across all states from this single hurricane will likely be in the billions. As a result of all these claims being paid, a massive influx of cash flows into credit unions from your members. With communities ravaged by these disasters and many businesses shutting down, it is unlikely that everyone receiving these claims will be hiring contractors immediately. Thus, credit unions will be holding large amounts of new cash, which can be used to offset any liquidity issues resulting from rapid withdrawals by members needing to pay for emergency expenses.
David Savoie, CEO of Louisiana Corporate, shared, “LaCorp, as an aggregator of liquidity for Louisiana Credit Unions, has a unique perspective on liquidity changes before and after storm impacts. While regulators often expect a liquidity crunch in affected institutions, often we see an opposite pattern.”
He continued, “Credit unions see a spike in demand for ATM cash both before evacuations and upon return to the area, as residents need cash to handle purchases in areas with power outages. However, the overall liquidity impact is a material increase in liquidity from government and private assistance, as well as initial insurance claim payments.”
Because this rapid inflow of liquidity is temporary and can subside quickly, it’s often wise to hold a large portion of it in overnight funds.
Vehicles such as LaCorp’s Money Market Account offer an ideal option for managing temporary liquidity inflows. With interest rates currently up to 5.11%, LaCorp’s Money Market Account yield exceeds the Fed account rate and any other corporate credit union rate on balances of more than $5 million.
While the immediate aftermath can be daunting, credit unions have a unique opportunity to demonstrate resilience and leadership in their communities. By meeting members' needs in these times of hardship, credit unions can help their members and communities get back on their feet. With thoughtful planning and a commitment to member support, credit unions can survive the challenges posed by natural disasters and emerge from them even stronger.
We're here for credit unions. Contact LaCorp today to learn more!