By Rebecca Mowbray, in the The Times-Picayune
Thousands of homes have been rebuilt, businesses have reopened and levee improvements are substantially complete, yet six years after Hurricane Katrina, local banks are still awash in cash. After Hurricane Katrina, the amount of money held at local banks rose sharply as people deposited their insurance checks in bank accounts while making their rebuilding plans. It was a fairly expected occurrence.
Economies recovering from disaster often see a buildup in bank deposits as a result of the insurance payouts. The funds are usually spent in the months following the disaster.
But despite all the rebuilding that has taken place since Katrina, the amount of money on deposit at local banks hasn't dropped to anywhere close to where it was before the storm. In fact, after declining slightly from 2006 to 2008, the amount of money held at local banks has again been climbing over the past few years. As of June 30, metro area bank deposits totaled $29.2 billion. In June 2005, area bank deposits amounted to $20.1 billion, or $23.3 billion in today's inflation-adjusted dollars.
Why the puzzling pattern? Bankers, economists and other experts say it's a mix of the local story of the long path of hurricane recovery, changes in the New Orleans economy after the storm, and a bit of money from BP. The economic anxiety about the future that is gripping the nation may also be encouraging consumers to keep money in their bank accounts.
High levels of bank deposits don't necessarily mean that it will be easier for consumers to get loans. Credit and underwriting standards are still tight after the 2008 financial crisis, and banks say that consumer and business demand for loans is weak. But bank deposits are a window into people's saving behavior and how the flow of money has changed in the New Orleans area in recent years.
Karl Hoefer, president of IberiaBank's Louisiana market, said that lots of insurance money flowed into the New Orleans area after Katrina, and people spent it rebuilding homes and businesses. But the money didn't stop flowing a few years after the storm: insurance disputes that ended up in litigation took several years to get resolved, the city has only recently settled some of its disputes with the Federal Emergency Management Agency over rebuilding payments, and projects such as replacing school buildings across New Orleans and construction on the University Medical Center complex are just beginning.
When the financial crisis hit in 2008, the Federal Deposit Insurance Corp. increased the amount of bank deposits it would insure to $250,000 per account and came up with several other programs to protect money in banks. In the process, Hoefer said, the FDIC created a safe haven where people could store more of their money and protect it from the whims of a turbulent stock market at a time when there were few other investment opportunities. Economic uncertainty
Three years later, the stock market remains volatile, and even though individuals and businesses aren't earning much interest on their deposit accounts, they're more keen to preserve their capital rather than risk it all in the stock market. Individuals are conserving cash because they're worried about job losses, and companies are sitting on money in case they need to draw on their own liquidity if they can't get the credit to expand, take advantage of an opportunity in the downturn, or plug a hole if something goes awry in their business, Hoefer said.
Meanwhile, the April 2010 Gulf of Mexico oil disaster again gave people reason to be fearful about the future and cautious with their money. As of Oct. 24, the Gulf Coast Claims Facility, the organization set up to make reparations to people outside of court, has paid nearly $1.7 billion in Louisiana, putting more money in people's bank accounts.
Loren Scott, professor emeritus of economics at Louisiana State University, said the amount of money people have been paid by BP is probably more than many people would have earned fishing, since some payments are designed to take care of the possibility of economic dislocation extending into the future. In addition, increased economic activity from the cleanup efforts could have generated other earnings that could allow people to put money in the bank. Rising incomes locally
Meanwhile, Scott said, even though the population of New Orleans is smaller after Katrina, the people that remain are earning more money than they used to. According to the Bureau of Labor Statistics, the average annual salary in the New Orleans area was $32,750 in May 2005. In May 2010, the most recent figures available, the average local salary was $41,000. One reason the amount of money on deposit remains elevated, Scott said, is that the New Orleans area economy has a different mix of people with different earning power than before the storm.
But Brian Bowling, vice president in bank supervision, regulation and credit risk management at the Federal Reserve Bank of Atlanta, said the story of robust bank deposits in New Orleans since 2008 is really the same thing that's happening nationally. "It's just the uncertainty. People are holding more and conserving more in cash, both consumers and businesses," Bowling said.
Bowling believes that's the case because the ramp up in deposits in New Orleans over the past three years looks just like the increase in deposits in other cities such as Baton Rouge, Birmingham, Ala., and Tampa, Fla., even though they didn't face Katrina or the brunt of the oil spill. Hoarding cash
Furthermore, national economic anxiety is readily apparent in bank deposit numbers from this summer, when the European debt crisis was getting worse and Congress was deadlocked over raising the debt ceiling. According to figures from the Federal Reserve, the amount of money on deposit at U.S. banks grew fairly consistently in 2009 and 2010, but this summer, as concern was building over Europe and the debt ceiling was mounting, deposits nationally grew at an annualized rate of 8.3 percent in June, then jumped to 18.9 percent in July, before falling back to 8 percent in August and 2 percent in September.
All of that makes Bowling pretty certain that businesses and individuals in New Orleans are hoarding cash just like their counterparts elsewhere in the country. "All of those things would lead me to believe that New Orleans doesn't look out of line with any other market or the national numbers," Bowling said.
Steve Hemperley, greater New Orleans market president for Capital One, the area's largest bank, said he agrees with Bowling, that the recent uptick in deposits is all about economic uncertainty.
"Many banks are flush with deposits," Hemperley said. "People feel more comfortable preserving their liquidity. Even though they may not be earning a whole lot of money, they may not be losing a whole lot of money." Rebecca Mowbray can be reached at firstname.lastname@example.org or 504.826.3417.