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Banking System Defiant in Katrina’s Aftermath

In the wake of Hurricane Katrina, banks' disaster recovery plans and backup systems are put to the test.

Amidst the chaos immediately following Hurricane Katrina, it was reassuring to see at least one entity had its act together -- the financial services sector. Even before the floodwaters began to recede, banks in the hurricane zone were in action, attempting to restore their operations.

Although there was no mass disruption of the large-value payments systems and core systems that occurred after 9/11, Katrina's effects were no less significant from a retail banking perspective. Consumers' ability to simply subsist depended on their being able to access their funds. This became a top priority for banks.

"In New York with 9/11, it was a matter of seeing if the payments and settlement systems worked. With Katrina, it's more 'My ATM doesn't work. How am I, as an individual, to accomplish the banking services I need to enable me to survive?'" explains Doug Johnson, senior policy analyst with the American Bankers Association. "From a public confidence standpoint, it's about our being able to affect smaller value transactions to enable individual customers to survive."

The ABA is just one of the organizations that has been working with government agencies to assist its member banks and consumers in the hurricane's aftermath.

"There is enormous support from the state bankers associations, state banking commissions, the FDIC, the NCUA and the national trade associations," comments Donald Donahue, chairman of the Financial Services Sector Coordinating Council for Critical Infrastructure Protection and Homeland Security (FSSCC), a public/private sector partnership. "Katrina affected the ability [of banks] to directly meet the financial needs of people. Are the ATMs working? Is there sufficient cash in the affected areas? Are people able to use plastic? The Fed has gone out of its way to make sure there are no cash shortfalls in the area."

Banks' disaster recovery plans and backup systems were put to the test. Although many banks in the hurricane zone sustained some kind of physical damage, insiders claim that so far, they have heard no complaints from financial institutions from a data recovery standpoint. According to Chad Driskell, director of government relations with the Mississippi Bankers Association, "All the banks in Mississippi were up and running as of Tuesday (Sept. 6). ... I don't know if there's a stick to measure [backup systems] by, but our banks are operating. They all recovered to their backup sites, some faster than others. Some had infrastructure damage, but the bankers did what they had to to get going again."

"There was only one institution as of [Sept. 8] that wasn't picking up ACH files," says the ABA's Johnson. "If you have only one bank not picking up ACH files, that speaks for itself." This also speaks well of the industry's third-party service providers, comments Bob Schmermund, EVP for corporate communications with America's Community Bankers.

In spite of the banks' systems being operational, there was one problem in actually getting them online -- lack of power. Although the banks were ready on their end, the local infrastructure was the weak link in the chain. The real issues affecting banks were basic, explains ACB's Schmermund -- communications, with both customers and employees; facilities, where some banks are having to share physical space; utilities, where there is lack of electricity and telecommunications; security; and transportation.

"We've heard about some cash and liquidity problems, but it wasn't due to bureaucratic inefficiencies but to the basic issue of there not being enough armored trucks and fuel to haul in the cash," he says. "There was no news about data processing issues. It's more that the basics just weren't being taken care of."

Regardless of these stories of success, it is important to note that things are not completely back to normal. In fact, some branches have been completely wiped out. "I'm sure the smaller retail financial institutions were significantly impacted by Katrina," comments FSSCC's Donahue. "A big national bank can fall back on other locations. But the industry and the regulatory community have responded very strongly to help the banks."

"I'm proud to represent these folks," says the ABA's Johnson of the banking community. "[The ABA is] going to work hard to make sure the smaller banks aren't affected more than the big ones. We want to make sure customers have full confidence in the financial system regardless of the size of the institution."

Calls to the Louisiana Bankers Association and Community Bankers of Louisiana were unable to connect at press time.

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