Federal Aid Request to Repair Harvey Damage Expected to Top Katrina
Hurricane Harvey left a rising number of deaths and costly destruction in Texas, where Gov. Greg Abbott (R) forecasts federal funding needs are “far in excess” of $125 billion, topping Hurricane Katrina, the Wall Street Journal reported today. Gov. Abbott said that he expects that the congressional appropriation needed for restoration will be larger than the roughly $120 billion provided to New Orleans after Katrina. Harvey-related payouts by private-sector insurers are expected to exceed $10 billion and possibly hit $20 billion, according to Wall Street analysts. The wide range reflects the many unprecedented aspects of the still-unfolding disaster. At the top end of that range, it would near the cost of superstorm Sandy in 2012, according to the trade group Insurance Information Institute, but trail Hurricane Andrew in 1992 and Hurricane Katrina in 2005, which cost the insurance industry $49.79 billion in 2016 dollars.
In related news, business owners across the country say the National Flood Insurance Program, the only option for most since private insurers largely got out of the flood business nearly a century ago, is sorely out of step with their needs, the Wall Street Journal reported today. Insurance experts and some government officials agree. The program’s limitations will be sharply tested when Harvey’s catastrophic floodwaters recede. The federal program was primarily designed for homeowners and has had few updates since the 1970s. Standard protections for small businesses, including costs of business interruption and significant disaster preparation, aren’t covered, and maximum payouts for damages haven’t risen since 1994. Twenty storms causing a billion dollars or more in damage have taken place since 2010, not including Hurricane Harvey, compared with nine billion-dollar floods in the full decade of the 1980s, according to inflation-adjusted estimates from the National Oceanic and Atmospheric Administration. Seven have hit just since 2016, including October’s Hurricane Matthew and February’s California flooding. A preliminary estimate on Tuesday by Moody’s Analytics is that Harvey will cause up to $75 billion in damages, with up to $25 billion of that in damages to businesses and lost economic output.
U.S. Consumer Spending Increased in July
Helped by higher incomes and low inflation, Americans bought more furnishings for their homes in July and also ratcheted up spending at hotels and restaurants as the Commerce Department today reported that consumer spending rose 0.3 percent last month, MarketWatch.com reported. The pace of inflation, meanwhile, was little changed in July. The PCE index, the Federal Reserve’s preferred inflation gauge, rose 0.1 percent. A core rate that strips out food and energy rose by the same amount.
Some Cash-Strapped Private Colleges Cut Programs, Sell Assets
Struggling private colleges are exploring creative ways to survive, like dropping programs and penning innovative property deals, the Wall Street Journal reported today. More incremental changes, such as adding online courses or tinkering with tuition discounts, didn’t boost enrollment or revenue enough for many institutions. Such decisions are a dramatic departure for schools where administrators historically bristled at words like “marketing.” They are a sign of the high stakes facing small, private colleges as families balk at rising tuition and question the value of a liberal arts education compared with more vocational alternatives. The percentage of finance chiefs at private, nonprofit colleges who agreed or strongly agreed that their institutions will be financially stable or sustainable over the next five years fell to 51 percent this spring, down from 65 percent the prior year, according to polls by Inside Higher Education and Gallup. While the initiatives may address immediate cash shortfalls or extend the timeline before another existential crisis, Susan Fitzgerald, associate managing director at Moody’s Investors Service, said that they may not solve fundamental issues such as a school’s ability to recruit and retain enough students to cover overhead costs. More than one-third of colleges with full-time enrollments below 3,000 students had operating deficits in fiscal 2016, according to a Moody’s report, up from 20 percent in fiscal 2013.
BlackRock Finds Insurers Hold Riskier Assets than in '08
A decade after the financial crisis, BlackRock Inc. examined the insurance industry’s $5 trillion in U.S. investments and found that insurers might fare worse now if markets crashed hard again, Bloomberg News reported yesterday. The world’s largest money manager mined the regulatory filings of more than 500 insurance companies and modeled their portfolios in a similar downturn. The stockpiles — underpinning obligations to policyholders across the nation — would drop by 11 percent on average across more than 260 property and casualty insurers in that group, according to its calculations. That’s significantly steeper, BlackRock estimates, than their “mark-to-market” losses during the depths of the crisis.
Commentary: How the Fed Is Flexing Its Muscles as a Banking Regulator
The $246 million fine imposed last month by the Federal Reserve on BNP Paribas of France over safety and soundness abuses may have been painful for the bank, according to a New York Times commentary on Tuesday. In May, New York State’s Department of Financial Services fined BNP Paribas $350 million for the same misconduct — namely, participating in a scheme to manipulate the benchmarks for foreign exchange transactions. Big banks have increasingly faced sanctions from regulators working in packs, at times led by the Fed, which is taking a broad view of what counts in ensuring that the banks it regulates are safe and sound, and which is pairing its big fines with extensive reporting requirements. For example, in 2014, the Fed imposed a $508 million penalty against BNP Paribas, its largest-ever penalty, also on safety and soundness grounds. It also required an audit and a review of the French bank’s internal controls. The Fed’s fine accounted for only part of the $8.97 billion in penalties assessed in total by American regulators for the same conduct.
Participate in Next Consumer Commission Meeting on Sept. 15 at NABT
The Committee on Chapter 7 of the ABI Commission on Consumer Bankruptcy will hold a public meeting during the National Association of Bankruptcy Trustees (NABT) on September 15 from 12:30 to 2:00 PM in the Marriott New Orleans in New Orleans, Louisiana. Attendees are invited to speak at the public meeting. For more information, including submission guidelines, please click here.
A list of topics under consideration by the Commission is available on the Commission’s website at https://consumercommission.abi.org/. To submit any comments or suggestions for the Commission, please e-mail [email protected].
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New on ABI’s Bankruptcy Blog Exchange: Sears Seeking to Stave off Bankruptcy
Sears has been working hard to stave off bankruptcy and the closing of the iconic company, from finding ways to cut costs to finding value in the assets that remain, according to a recent blog post.
