It's Messy: What Happens after Safe Deposit Boxes Get Flooded

By Wack, Kevin | American Banker, September 15, 2017 | Go to article overview

It's Messy: What Happens after Safe Deposit Boxes Get Flooded


Wack, Kevin, American Banker


Byline: Kevin Wack

When customers rent safe deposit boxes, they typically sign agreements stating that the bank is not responsible for an act of God.

But that disclaimer does not mean that -- in the unlikely event of a flood, fire or other calamity -- banks are necessarily in the clear. After natural disasters strike, branch workers follow a well-choreographed script that aims to recover customers' items, ensure employee safety and minimize the banks' own legal exposure.

"Banks are in a very difficult position here," said Scott Sargent, a lawyer at Baker Donelson who specializes in risk management and regulatory compliance. "The best they can do to protect themselves is document everything."

The industry's disaster-response playbook is now being dusted off in both Texas and Florida, where recent hurricanes have resulted in dozens of deaths and untold billions of dollars of property damage.

During Hurricane Harvey, a ValueBank Texas branch in the small city of Port Aransas was flooded with salt water, and roughly 100 safe deposit boxes were damaged. "Four feet of water in a vault," said CEO Scott Heitkamp.

Once the storm passed, the bank began contacting customers and asking them to retrieve their items. Fortunately, many of them averted damage by storing their valuables in plastic bags.

"I was concerned about customers' reactions," Heitkamp said. "And so far, customers have been mostly pleased."

Safe deposit boxes can be a knotty business for banks. They promise security -- in flood-prone regions, some residents may rent the boxes out of fear that their homes will end up under water -- but that guarantee only goes so far.

Typically, none of the relevant physical infrastructure -- the bank vault, the box or the metal storage container, known as a bond tin, which customers use to stash and retrieve their items -- is waterproof.

Customers can buy private insurance for the items they store. But unlike bank deposits, safe deposit boxes do not benefit from a federal safety net.

A bank's response to flooding usually starts with an assessment of the physical damage. If the water has receded, it may be safe enough to invite customers into the branch to retrieve their items. If not, the bank may need to drill into the boxes in order to retrieve the damaged contents.

This work can be hazardous. In the wake of Harvey, the city of Houston continues to contend with the effects of contaminated flood waters and mold.

"It'll literally make you sick," said David McGuinn, president of the consulting firm Safe Deposit Specialists. …

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