April 14, 2006

Banks will be OK, but cash is king in a pinch
by Mark Calvey, San Francisco Business Times

As panicked New Yorkers fled lower Manhattan on Sept. 11, many stopped to pull cash out of the ATMs.

"The ATMs are out of cash," one Chase banker told those racing for the machines that morning. "They'll be replenished at 3 p.m."

In San Francisco , Wells Fargo immediately instituted limits on how much cash customers could pull out its bank branches.

While the limits, which stood at $1,000 in some markets, were removed the following day, they underscore how people turn to their bank in times of distress.

"Despite this national crisis, we want to reassure our customers that we are making every effort to conduct business as usual through our stores, ATMs, phone banks and our Internet banking site," Wells Fargo Chairman and CEO Dick Kovacevich said at the time. "We want to assure our customers that their money remains in a safe and secure environment."

Bankers are spending millions of dollars in backup systems and contingency plans to support the vital role they expect to play in boosting confidence and quelling fear and panic in the wake of a major Bay Area earthquake.

"It's like defensive driving," said John Conover, CEO of Borel Private Bank & Trust in San Mateo. "You reduce the possibility of being hurt by being prepared with plans and practice."

Still, bankers routinely recommend people have at least a few days of spending money in small bills as part of their earthquake-preparedness kits since ATMs and the telephone lines on which credit card acceptance depends are likely to fail in a major earthquake in the Bay Area. Plus, the cost of goods is likely to soar in the wake of tragedy.

The need to ensure banks are up and running quickly after a disaster is attracting increasing attention from federal banking regulators.

"Because financial institutions play a crucial role in the United States economy, it is important their business operations are resilient and the effects of disruption in service are minimized in order to maintain public trust and confidence in our financial system," the Federal Financial Institutions Examination Council said in offering guidance to bank examiners as they work to ensure that financial institutions are prepared for disaster.

Financial institutions routinely have backup systems that can keep track of financial accounts and records as well as geographically diverse operations so call centers and other parts of the business can roll over to other facilities if a disaster shuts down Bay Area operations.

Silicon Valley Bank , for instance, said earlier this year that it will build a "parallel operations facility" in Utah to help weather a disaster.

"With the opening of this facility in Salt Lake City, we are ensuring that we can perform all essential operations independently, even if our resources in other parts of the country are temporarily or permanently disabled," said Lynda Ward Pierce, head of human resources for Silicon Valley Bank.

Financial institutions also rely heavily on their major vendors to be able to provide support in the wake of a disaster. AT&T , for instance, spends heavily to be prepared for disaster. The company has trailers and warehouses around the world that can bring the necessary telecom equipment to a region hit by disaster.

"Telecom is treated as a critical infrastructure -- crucial to maintaining peace and order," said Bobbi Bailey, global network operations vice president at AT&T. "The banking industry worries a lot about data storage and data backup."

Financial institutions are concerned with how long they'll be out of service as well as capturing transactional data, whether it be for those handled in the last seven days, last five minutes or final two seconds before disaster strikes.

"We build contingencies to show confidence," said Borel's Conover, who spent much of his career at Bank of America . At BofA, he oversaw that institution's "Y2K" preparations for the Year 2000, which some feared could bring the nation's financial system to its knees if computers interpreted the two-digit year "00" as 1900 instead of 2000. The new year rang in with few glitches.

At the end of the day, bankers focus on maintaining confidence while meeting customers' needs because the worst-case alternative is, in banking terms, as scary as an earthquake: A run on the bank, which could be devastating for a specific institution and possibly the overall economy.

Mark Calvey covers banking for the San Francisco Business Times. Chris Rauber contributed to this report.