Crisis Preparedness: Reconnecting the Financial Lifeline (Transcript)
News coverage: [Male newscaster] It's pushing water towards our area already. [Female newscaster] It's a Category 5 hurricane.
Alden McDonald (chief executive offer, Liberty Bank): The initial effect for Katrina and Liberty Bank was quite devastating. We got hit pretty hard. You can see that the water really exceeded this level.
Shane Loper (chief operating offer, Hancock Bank): When Katrina hit the Gulf Coast our headquarters building was completely destroyed. What that created was, essentially, total loss of all operating capacity.
Captain Thomas (Biloxi Fire Department): When I came back down the day after the storm and saw what the coast was like, it looked like a war zone.
Pat Barron (first vice president and chief operating offer, Federal Reserve Bank of Atlanta): We had far greater devastation than anyone had ever anticipated, and it was going to be unlikely that we were going to have operations restored any time in the next few days in the New Orleans location.
McDonald: Just think in terms that where your heart of your operations are, all of a sudden the next day or the next hour, it's gone. What do you do?
Barron: When I think of banks, and I think, whether it's the Federal Reserve or commercial banks or any ongoing enterprise, we all need to ensure that we've got very effective emergency preparedness plans in place.
Connecting the Resources: Emergency Planning
Officer Bell (Biloxi Police Department): The community can't run without some source of cash. So it's important for bank managers to have a contingency plan to get ATMs up and running, somewhere people can come cash a check and continue operating as normal, because that's the time where you really need to have some access to money.
Charles Montelero (senior vice president, Iberia Bank): We want to build plans that address the immediate impact of a major event. A fire. A bomb threat. A building implosion. A 9/11. Things that are brought on suddenly, that require quick response from the financial institution or any business. So plans should be developed around risk assessments that identify what is truly going to impact your business and how to recover quickly.
Connecting the Staff: Employee Welfare
Barron: The first thing you focus on isthe welfare of your staff and the welfare of the individuals who've been in the impacted area.
Landy Dutton (senior vice president, Regions Bank): Our business is service oriented, and you must have trained associates in order to provide that service. So our contingency plan for hurricanes involves taking care of those associates first.
Chevis Swetman (chief executive offer, Peoples Bank): We made shelter available to them. In our particular case, we had about 20 or 30 people living in the main office building. My home was in the conference room behind my office on the lower level. So immediately after the storm we said it's very important to make sure our people are housed and their families were taken care of.
McDonald: All of the backup plans that we did have, all of the disaster plans that we did have, we did follow them. However, there were a few things that we didn't think of for a disaster. All of this technology?we even had a back-up generator, but when you can't get fuel for the backup generator, and you can't get electricity, and you can't get communication lines, none of this will work.
Loper: We had an info link system which we push out messages telling people what to do, where to call, where to go based on where you're located and different facilities that are up and operating. That worked fairly well, but what it didn't allow us to do was to determine where is that person, and are they OK or not.
Montelero: Security was a huge issue post-Katrina. It was very difficult to get employees to go back to work when they felt that they were working in an environment that was not safe. To do that we had to contract with local law enforcement, or even law enforcement out of Lafayette that would go in and stand guard at our branches while we were open.
Dutton: Whenever areas go through situations where there is no electricity, you find yourself in a cash-based society.
Connecting the Lifeline: Cash Becomes King
Swetman: None of the communication lines were up, none of them were available, so cash became king. So what we tried to do was, we tried to put as much cash as we could back out in the economy.
Loper: Some of our branches that were destroyed; we went there and got some of the cash. We had to wash that cash. We had to put it in dryers and dry it. We had to iron it to get it back in a condition that you can re-strap it and then get it back into circulation for the public.
Connecting with Financial Institutions: The Federal Reserve and Others
Barron: Some financial institutions, be it banks, credit unions, and others, had really never utilized Federal Reserve services before the particular hurricane had devastated their prior arrangements.
McDonald: We ran out of cash very fast, and we needed to really set up in advance a system with the Federal Reserve to receive additional cash.
Dutton: Our plan calls for placing cash in some predetermined vault locations, as well as asking the Fed to pre-stage cash at their locations.
Steve McCleskey (assistant vice president, Regions Bank): We recognized that we needed to have flexibility in being able to very quickly deploy a mobile branch into a community following a disaster. It gives us flexibility of very quickly delivering some level of banking service to the local community.
Dutton: We also partner with the Fed through the discount window, which allows us to borrow money to fund our operations and maintain the economy of the United States. So whenever we're impacted in some way, a close relationship with the Federal Reserve is a must.
Adrienne Slack (New Orleans Branch of the Atlanta Fed): There are three things that I think are key to responding to any contingency event, and that's communication with your vendors.
Montelero: We ask our vendors to produce their business continuity plans and show that they are actually testing their plans so that we can count on them in an event.
Slack: Transportation is another key aspect.
Swetman: We had to get cash out to the branches. After the storm, I had a Hummer that survived the storm, and for two months that was our main currency delivery vehicle.
Slack: We saw depository institutions partner with one another and share facilities and currency and coin and anything else that they needed from one another, so formalizing some of those plans and extending those networks to one another would also be beneficial.
McDonald: During our catastrophe we also realized that we needed a buddy bank. You could use your buddy bank for three things, basically: receiving your items, sending your items, processing your ACHs, and I should say a fourth thing—your wire transfers. That would be necessary.
Connecting to the Community: First Responders
Barron: If I'm a community banker, the first thing in my motto is serving my community. When I get my staff together, I talk about what our job is in this community, and our job is to reach out and embrace the community, especially during a time of crisis.
Swetman: There has to be some type of coordinated effort between your fire and police. In case there's a disaster, a financial institution will always become a target.
Loper: It's critical that banking is included in that overall emergency response team, those first responders. We may not need to be the first people on the ground after the storm, but we definitely need to be some of the very first right after the essential life needs are taken care of.
Connecting the Dots: Testing the Plan
Loper: Justifying the expense for business recovery has always been a balancing act with any company, and especially in the banking industry. But you've got to have good continuity of your systems.
McDonald: In looking at your disaster plan, you have to be very creative in thinking and walking through some of the issues you may not be thinking about today.
Montelero: Our plan testing takes place at least annually, and some departments test biannually, and some quarterly depending on the type of recovery perspective that they have.
Barron: Go through your plan, look at your vulnerabilities. Where's your single point of failure? Are you so dependent on one individual, if that individual is injured, or—God forbid—couldn't really be there to help your organization, does your plan fall apart?
Reconnecting: Lessons Learned
Dutton: Katrina taught us a lot of lessons. Katrina taught us the importance of planning up front. It taught us the importance of working as a team.
Loper: Lessons learned is to diversify, to get out into other facilities.
McDonald: I mean, we look at life a lot differently today than we did two years ago. The lesson we did learn is to plan, plan, and to continue planning.
Swetman: It'll never happen again what happened in Katrina, you'll be much better prepared.
Barron: It was pretty clear that, that we needed to do a better job of working together to meet the needs of the community. From a Federal Reserve perspective, we're reaching out to make sure that we've got good solid communications, and that our plans are supportive of one another, not independent of one another.
McDonald: Because the Federal Reserve needs to know all of the information necessary to keep this lifeline flowing. Because if you cut that water off, if you cut that electricity off, it's like cutting off the blood to your heart.
Loper: Whether it's a business or a consumer, the bank has to be there. The banking system has to be there to ensure that they have cash, they can get a loan. There are a lot of things that banks can provide as an essential service to the community to ensure that after a disaster the commerce is facilitated so that the recovery can begin and the community can continue to grow and flourish.
To be prepared in times of crisis:
- Develop a flexible plan to ensure quick recovery
- Plan for the safety and welfare of employees
- Back up critical information to alternative locations
- Use Federal Reserve and other financial institutions to create supportive continuity plans
- Make arrangements in advance with first responders for security and access
- Test emergency plans regularly