New Storms Threaten Coastal Institutions

Latest Disaster a 'Dress Rehearsal for Something Worse'
New Storms Threaten Coastal Institutions
With an estimated damage toll that may reach $12 billion, the aftermath of Hurricane Gustav's track through Mississippi, Louisiana and other states finds banks and credit unions cleaning up and reopening their institutions.

Now being the "prime time" for hurricanes, all eyes remain closely fixed to television reports, with three named storms already heading toward Florida's eastern coast and two others gaining strength.

Calling Gustav a "dress rehearsal for something worse," Mississippi Bankers Association (MBA) President Mac Deaver assesses the overall reaction and recovery time for institutions as a great improvement over previous disasters, with many financial institutions reopening in Mississippi on Tuesday, where power and staffing levels were available.

Louisiana's financial institutions were hardest hit, as Gustav drove through the state over the holiday weekend. Louisiana reports it still has more than 1 million without power, including financial institutions. No exact totals could be ascertained, but banks in New Orleans, Baton Rouge, Alexandria and Lafayette remain closed because of power outages and water damage.

Bob Bacon, Interim Commissioner at the Texas Department of Banking, says that overall Texas state-chartered banks were not significantly affected by Gustav. "A few institutions in the storm's path had branches closed on Tuesday, mainly due to bank personnel taking care of their families. No institutions have reported physical damage to their facilities."

The FDIC reported that 61 counties in Texas were declared disaster areas. Louisiana, Mississippi and Alabama were all declared federal disaster areas.

Mississippi Banks Remained Open
As Gustav approached, Mississippi institutions decided to remain open when they saw the hurricane was moving further west of the state, and the targeted landfall was in Louisiana. John Allison, Commissioner of the Mississippi Department of Banking and Finance, says only three Mississippi institutions were closed on Tuesday after Gustav moved through Southern Mississippi. Peoples Bank in Biloxi, Navigator Credit Union, and Biloxi Municipal Employees Credit Union were closed on Tuesday for employees' safety concerns, "Their interactive websites and ATMs were operational, just no lobby traffic," Allison notes.

Institutions and their customers took the hurricane warnings seriously and evacuated the areas most likely to sustain heavy wind and storm surge. "Our institutions are in lock-step with their disaster recovery plans after Katrina," Allison says. "Notices were adhered to when they came, and people were ready. I heard from people after Katrina who said 'We're going to do something different the next time.'"

The recovery cycle is speeding up after natural disasters, says Allison. Even though collateral damage was low after Gustav and nowhere near the level sustained after Katrina, some institutions along the Gulf Coast have converted their generators to run off of natural gas and now don't have to wait for fuel deliveries. "That's a new twist that makes our recovery even faster," he says.

The Mississippi governor issued emergency proclamations, giving state agencies a lot of leeway to make decisions, says Allison. "This cuts tremendous amounts of red tape. We tell our banks and credit unions to do what they need to do to protect property, life and do business. It's their call, how they want to do it and when they want to do it. During this time they don't need to take time to be calling us and getting permission to this or that; we let common sense prevail in this situation."

The Recovery Begins
As Louisiana cities and parishes begin to allow evacuated citizens back into their homes, banks and credit unions are also working to reopen for business, says Bancorp South's Mary Lois Stockman. Bancorp South (NYSE: BXS) had several branches across the state that were closed, including its main branch in Baton Rouge's downtown. It sustained water damage from flooding. Bruce Thomas, CEO of Calcasieu Teachers & Employees Credit Union of Lake Charles, LA, says the credit union's two branches were to reopen on Wednesday. (See related story - Disaster Recovery Case Study: Surviving Rita)

Conditions in Texas' costal counties moving north along the Louisiana border were expected to return to normal operations by Wednesday. Banks in the Tyler, Longview, and Texarkana areas were open on Tuesday and waiting to see if rainfall resulted into flash flooding, which would affect their decision to open on Wednesday. None reported being closed as of Wednesday afternoon, Bacon says.

The Texas Department of Banking and the federal regulators coordinated calls to institutions, and the FDIC took the lead to maintain a database to record the accumulated information, notes Bacon. "Each agency has the ability to input information into the data base. State banking regulators are more aware of which specific state resources/agencies to contact if financial institutions need assistance for protection and access to restricted areas. During the last legislative session, the Commissioner was granted the authority to allow temporary branches for out-of-state banks needing to establish temporary facilities to service displaced citizens," Bacon says.

All banks are required to have an organization-wide disaster recovery and business continuity plan. Due to the very minor disruption of financial services caused by Hurricane Gustav, most Texas banks were not required to fully implement their plans. However, Bacon says he has no doubt that these plans would have been very beneficial if needed. In the coming months, state examiners will be working with Texas bankers to assess the effectiveness of their disaster recovery and business continuity plans, making recommended changes for improvement in areas where problems are encountered.

Learning from Katrina's Lessons
In the aftermath of Hurricanes Katrina and Rita in 2005, the financial services industry served notice that better response and preparation were needed for future events. These lessons learned were taken up by institutions across the nation and were seen in action before, during and after Gustav, say industry leaders.

Texas' Bacon sees the communication efforts between all agencies, state and federal, were more organized and informative. "The FDIC held daily calls with state and federal bank regulators, along with calls with bank trade organizations, to get reports and respond to issues."

MBA's Deaver says the daily conference calls held by his association for Mississippi banks were also well-attended before the hurricane and allowed banks to share information and keep on top of issues that would possibly affect their institutions.

One lesson learned from Katrina is what Deaver calls the "people element" being injected into BCP at institutions. "We were very mindful this time, people are thinking of the personal side of this event." This is something that Deaver says he didn't see at least initially during Katrina. "Now, even during the business side of recovery, the human side comes first."

See also: Tips for Recovering Data from Water-Damaged Devices

About the Author

Linda McGlasson

Linda McGlasson

Managing Editor

Linda McGlasson is a seasoned writer and editor with 20 years of experience in writing for corporations, business publications and newspapers. She has worked in the Financial Services industry for more than 12 years. Most recently Linda headed information security awareness and training and the Computer Incident Response Team for Securities Industry Automation Corporation (SIAC), a subsidiary of the NYSE Group (NYX). As part of her role she developed infosec policy, developed new awareness testing and led the company's incident response team. In the last two years she's been involved with the Financial Services Information Sharing Analysis Center (FS-ISAC), editing its quarterly member newsletter and identifying speakers for member meetings.

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