Amid the chaos of the morning of Sept. 11, about 25 senior Bank of New York executives trooped from their One Wall Street headquarters, which once sat in the shadows of the World Trade Center, to the firm's disaster recovery command center near 51st Street. That was the start of a company-wide exodus from the bank's four downtown locations, as 8,300 employees scattered throughout the tri-state area.
Government clearance and data processing for the bank's broker-dealer business were relocated to a facility in Maywood, N.J.; funds transfer operations were moved to a N.J. site operated by disaster recovery specialist Comdisco; custody, operations and mutual fund accounting were relocated to a facility in Pleasantville, N.Y.; and American Depositary Receipts (ADRs), corporate trusts and stock transfers went to a third facility in West Paterson, N.J.
Communication among scattered employees and between the bank and its clients was almost nonexistent in the hours after the attack as a major Verizon switching station-containing four call processing computers, serving 200,000 access lines or three million data circuits in lower Manhattan-was heavily damaged.
The loss of the Verizon switching station left the bank with virtually no bandwidth for transmitting voice and data communications in downtown New York. "Information couldn't be routed to the firms. It just couldn't get there," said Damon Kovelsky, an analyst at Meridien Research.
Thomas Perna, senior executive vice president at Bank of New York, explained, "If people weren't connected to us they would not have had a view into whether or not the trades were actually settling. We may have actually been settling trades with the Fed but the customers didn't know."
To help remedy the situation, the bank quickly purchased 800 cellular phones to help employees communicate with their clients. But the temporary loss of an entire data center and a damaged telecommunications network left it struggling to connect with customers and industry utilities.
One of the largest custodians and clearing institutions in the country, Bank of New York handles 140,000 fund transfers a day totaling $900 billion. The bank plays an important role in the financial system by facilitating the transfer of cash for securities between buyers and sellers. Thus any outage of its systems could leave other firms short of anticipated cash already promised to others.
"Other banks that were expecting funds didn't receive those funds on a timely basis," said Charles Rauch, director of financial services at Standard and Poor's, which announced that it was reassessing the disaster's long-term implications for Bank of New York.
Rauch criticized the bank for being in a position where one disaster could affect so much of its business. "You had multiple operations centers very close by that were affected," he said. "They should have had operations more geographically dispersed-it was all allocated downtown within a couple of blocks of each other."
Defending the bank's downtown presence, Perna said many institutions have multiple locations in close proximity. He also denied reports that a large amount of funds was at risk.
Within weeks of the attack, Bank of New York had reoccupied its One Wall Street headquarters and another downtown location, and also had rented an additional 600,000 square feet of office space in midtown Manhattan. Some operations, however, were still being performed at their backup locations.
Meanwhile, the Federal Reserve board took swift action to shore up the financial system in the wake of the attack.
The Fed almost immediately opened its discount window to member banks in need of emergency cash. Overnight discount loans, which peaked at $81 billion on Sept. 14, had receded to $1 billion-a normal daily figure-by Sept. 21.
The sharp drop in discount loans was a sign that firms operating out of contingency sites had been able to reestablish connections and were moving back toward more normal operations, said Peter Bakstansky, senior vice president at the Federal Reserve Bank of New York.
The central bank also used its other principal tool for injecting liquidity into the markets-buying Treasury securities from its member banks on a temporary basis to get more cash into their dwindling coffers.