Is Your Bank Prepared for a Weather Disaster?
by Weiss Ratings | September 9, 2011
A weather disaster like Hurricane Katrina, or even Irene, could spell trouble for your bank, at least until they implement their disaster recovery plans.
Financial institutions are among the many businesses that face unique challenges when it comes to hurricane season or other threats. Because we rely on these institutions to keep both personal and commercial business moving in the face of disaster, business continuity is critical for this industry.
Banks in areas hit by significant storms have had to deal with many problems, including:
- Communication outages that made it difficult to locate personnel,
- Unavailable or restricted transportation,
- Lack of electric power and fuel for generators,
- Downed computer systems,
- Destroyed or significantly damaged facilities,
- Buildings, vaults and ATMs underwater for weeks,
- Interrupted mail service, in some areas for months.
We all want to know that our bank will be there when we need it, even after a disaster. And regulators want that too. So they look at past events to help banks prepare for the worst.
How Banks Cope
According to the Federal Deposit Insurance Corp (FDIC), advance planning and preparation are extremely important for financial institutions to be able to restore operations quickly. However, the magnitude and duration of recent storms exceeded the scope of some disaster recovery plans. Consequently, many banks had to adjust and improvise creative solutions to respond to unexpected complications.
The Federal Financial Institutions Examination Council’s (FFIEC) regulatory agency members and the Conference of State Bank supervisors provide guidance for business continuity planning. While the spate of storms hasn’t prompted regulatory change, banks have been asked to review their recovery plans based on lessons learned from the effects of Hurricane Katrina.
Your Bank Must Prepare
While major storms are generally infrequent, financial institutions should have disaster recovery plans in place to deal with foreseeable threats including recovering their information technology and computer systems.
Banks should prepare and practice for possible disasters. By identifying potential threats, the possible impacts and responses, they have a better chance of continuing business during difficult times. Knowing where to go and which critical functions must be restored first will help bank management and employees respond to a disaster effectively.
As with any other business, banks must try to strike a balance between possible threats and the costs to reduce those risks. They should implement reasonable safeguards for realistic threats. But there still may be some situations that are impossible to alleviate or plan for.
Do They Test Recovery Plans?
Banks are expected to run disaster drills that include worst-case scenarios. How often and thorough these drills are can make a difference. The FFIEC recommends simulating realistic disasters and the processing of sufficient transaction volume to ensure adequate capacity and capability.
The tests are supposed to consider all critical functions and applications, use off-site data and supplies, and include improvisation to meet unexpected events. Banks should be able to revert to manual transaction processing, restore damaged files and documents, and protect employees and customers from potentially harmful exposure to contamination.
Did Your Bank Pass the Test?
After simulating a disaster, your bank should review results to determine what worked and what went wrong. These performance assessments will help your bank adjust their plans as needed.
Who’s Involved?
Since all employees can contribute to an institution’s recovery, every level of personnel should be expected to know their role in disaster plans. You can get a feel for this by asking your personal banker or customer service representative what they know about your bank’s disaster plans. For safety reasons they shouldn’t give you specific information. But hopefully you’ll get a sense of comfort that there is a plan.
Communication Is Important
Widespread disaster can affect land-lines and cell phone service. Banks should have contact lists of key management employees, customers, vendors and government agencies. This critical information should be kept at more than one site so that employees can be contacted as soon as possible after a disaster.
Banks also look for ways to establish alternate communication lines with employees and customers including two-way radios and satellite phones so employees can report their location and get current information.
What about the Mail?
A disaster can disrupt the U.S. Postal Service for an extended period. Customers with automatic deposit and bill payment services had less difficulty maintaining their accounts during Hurricane Katrina. Banks may encourage customers to establish these relationships. And you should consider these options well before a disaster strikes.
Who Moved My Bank?
If you’re in the midst of a disaster, you may find your bank has had to move its physical location. Disaster plans usually include alternate sites in case your bank building is damaged or destroyed. Or perhaps the area has been evacuated, the infrastructure damaged, roads washed out, bridges collapsed, power lines down. Employees may be instructed to report to alternate locations. For security purposes, it is very likely they will not be able to share that information with you in advance. Watch for signs and listen to TV and radio broadcasts to get new location information.
How Will the Bank be Staffed?
Many institutions will establish alternate transportation for employees to reach the facility. They’ll use carpools, bus services, and other possible transportation. Sometimes they will have to rely on local, state or federal government assistance to reach affected areas. Hopefully, their advance planning will work. And within a reasonable period there will be staff available to help you.
Bank Employee Families
Just like you, bank employees are going to be concerned about the safety of their families. Many disaster plans include preparations for employee families that need to stay in a disaster area. When employees know their families are safe they can stay focused on bank business.
Will Your Bank Have Electrical Power?
Many institutions lost primary and back-up facilities in the aftermath of Hurricane Katrina. As part of disaster planning, banks will generally check with the local power company to determine which of their facilities may be at risk, especially if more than one branch gets power from the same source.
It is now common in many areas for banks to have back-up power from portable gas or propane generators. These machines are intended to provide power for critical operations, but won’t usually meet all electrical needs.
If your bank can’t re-establish connectivity with the data processing facility, they may resort to manual transaction processing. Often the manual records will be physically transported to other processing sites. Because these procedures are not failsafe, make sure you receive appropriate receipts or other documentation of your transactions before you leave the bank.
You May Need Cash
When power and telecommunications are out, all electronic forms of payments such as debit and credit card payments and ATMs are also disrupted. Bank customers and employees who remain in affected areas may need cash to pay for critical goods and services. Your bank can order cash to facilitate business. You should also keep cash on hand as part of your own personal disaster plan.
What about Vault Damage?
During Hurricane Katrina, many bank vaults were damaged. Banks are being advised to keep their paper records and currency in plastic bags to minimize water damage. If you have a safety deposit box, you should do the same.
Working Together for Recovery
The Department of Homeland Security, non-governmental organizations, non-profit volunteer agencies and private sector entities can be fundamental to response and recovery efforts. Banks may reach out to discuss ways organizations can work together. If you’re part of a community organization, you will want to encourage this planning and be prepared to get involved after the event to help the recovery effort.
How Do Regulators Help?
During past hurricanes, regulatory agencies communicated with the industry and the public through a variety of media including television, radio, websites and national call centers. Your bank will keep a list of regulatory points of contact and establish communication as soon as they can. If you have to, you can contact regulators too. Here are their web addresses:
Emergency Agencies
Federal Regulatory Agencies
State Regulatory Agencies
Emergency Contact Information
While we hope you will never have to experience severe weather or other emergencies, we know it’s helpful to understand what you can expect from your bank when a disaster does hit.
And, don’t forget to check your bank’s financial strength rating — a strong financial bank will survive the disaster even if facilities are temporarily out of commission. To get your bank’s financial strength rating, just register, it’s free!