By Scott Van Voorhis
As if regulatory demands weren’t enough, add climate change to the list of urgent issues with which bankers across the country wrestle. Some are responding, and some have back-burnered the issue.
Freak storms and weather events, from Tropical Storm Irene and the deadly Springfield, Mass., tornado to Superstorm Sandy, have incurred significant infrastructure damage across the region, driving home the threat posed by global warming.
Some of New England’s banks are now grappling with how to respond, with executives spending hours at workshops and seminars poring over flood zone maps and sea level charts.
New Awareness in Vermont
In the Green Mountain State, the banking and business community in the Green Mountain State got a front-row seat on the potential impact of climate change back in 2011 when Tropical Storm Irene hit, said Christopher D’Elia, president of the Vermont Bankers Association.
The storm tore through the state, wrecking roads and bridges, leaving some communities temporarily cut off from highway access.
The savage storm made a lasting impression on Vermont’s banks, which got a crash course in doing business amid a disaster area.
“The issue in general is not foreign to us because of the direct impact of Tropical Storm Irene,” D’Elia said. “Banks have a sense of some of the damage that can occur as a result of a storm like that.”
Vermont banks stepped up to the plate to provide funding to help rebuild roads and other infrastructure wiped out during the storm. Banks across the state also worked with the thousands of homeowners who experienced severe property damage, in some cases incurring a total loss. Unlike a typical house disaster, loan officers had to learn fast how to work with the Federal Emergency Management Agency, which was at the center of relief efforts, D’Elia said.
That meant first trying to figure out what, if any, assistance FEMA would be providing to homeowners, given that money could be used to pay off the portions of the mortgage. Banks also had to learn how to work more closely with their colleagues in the insurance business than ever before, the VBA chief noted.
In more than a few cases, banks simply had to write off the mortgage altogether, with the lot swept clean of what had been someone’s home, D’Elia said.
In the cases where “properties were wiped out and there is no home, where there is literally no home or business left on the property, banks had to adjust their thinking on how there were going to deal with those properties … how to restructure loans and, in some cases, to forgive loans,” he said.
Boston Braces for the Worst
Boston is another area where bankers are paying close attention to the perils of climate change.
While Vermont’s bankers got their wakeup call in 2011, Superstorm Sandy in 2013 sent a jolt through the world of Boston development and the bankers who help finance it.
It didn’t take long for the Boston Harbor Association to release a report with maps showing the kind of devastation a Sandy-like storm might wreak in Boston, putting large tracts of downtown under water.
And while bankers have not been at the forefront of those discussions, they are also clearly paying attention to the issues, showing up at climate change seminars detailing the potential impact rising seas will have on Boston, noted Vivien Li, executive director of the Boston Harbor Association.
“The financial services industry is following the whole issue of sea level rise and climate change carefully,” Li said.
Boston officials have taken the lead in urging builders planning new projects to consider putting mechanical systems on upper floors, out of the way of potential flooding.
That said, developers and their lenders don’t need to be told by city or state government that the climate is changing and that some projects may face greater risks in the future, said Gregory Vasil, CEO of the Greater Boston Real Estate Board.
“The people involved in these deals are looking at the risks,” he said.
Bankrolling Renewables
Still, while many bankers are starting to pay close attention to the climate change issue, there is no sign yet that they are revamping loan procedures or getting tough on lending to waterfront projects.
The building boom along Boston’s waterfront has continued unabated, despite concerns over rising sea levels, Li said. In fact, some of the sense of urgency for immediate action has dissipated after a couple of key bills dealing with climate change and renewable energy failed to make it off Beacon Hill this year, said David Floreen, executive vice president and chief operating officer of the Massachusetts Bankers Association.
One bill would have provided a major boost to efforts to develop solar power and other renewable energy sources, while the other would have examined the impact of rising sea levels and other elements of climate change on the Massachusetts economy.
At the moment, the MBA has no plans to start doing seminars on climate change issues.
“All of this is probably a little bit down the road for us,” Floreen said. “That can has been kicked into next year, probably into the hands of a new governor and a new Legislature.”
So far, the most visible way local bankers are taking on climate change is through special loan programs aimed at encouraging homeowners and companies to embrace energy conservation and green energy, he said.
The MBA has worked with the Massachusetts Department of Energy Resources to craft a loan program for homebuyers and businesses interested in buying their own solar panels. The program, now being hammered out, would allow borrowers to take out up to $20,000 to $25,000 over 20 years, at 4 to 5 percent rate, to pay for the panels, Floreen said.
The current timetable calls for a rollout of these solar loans by late fall, he said.
And banks across the state are heavily involved in providing interest-free loans of up to $25,000 to homeowners interested in a range of improvements aimed at cutting their electric and heating bills, from weatherization to installing high efficiency heating and hot water systems, Floreen said.
A total of 50 Massachusetts banks and credit units are on track to make up to $100 million in these loans by the end of 2014, he said.
“Bankers do want to be supportive of good lending and good business, and hopefully energy conservation,” Floreen said.
Competing Demands
However, some bankers say their plates are already so full dealing with regulatory issues, climate change simply isn’t on the radar. That’s true of most bankers in Maine right now, said Christopher Pinkham, president of the Maine Bankers Association.
“Given every other issue that is on their plate, it has not come up at all,” he noted.
That doesn’t mean some individual banks aren’t taking on some interesting projects related to energy efficiency – Pinkham points to a local bank that just installed a new geo-thermal energy system at two of its branches.
Yet of much more immediate concern to Maine banks is complying with increasingly aggressive federal efforts to crack down on money laundering, which requires major investments of time and resources into various compliance programs. And that’s just the tip of the regulatory iceberg.
Such efforts take a toll on the bottom line and make it harder to offer attractive savings accounts and other products, according to Pinkham.
“In some ways, banks have become the law enforcement branch of the federal government,” he said.