[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
PANDEMIC INFLUENZA PREPAREDNESS
IN THE FINANCIAL SERVICES SECTOR
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JUNE 29, 2006
__________
Printed for the use of the Committee on Financial Services
Serial No. 109-104
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31-533 WASHINGTON : 2007
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair DARLENE HOOLEY, Oregon
RON PAUL, Texas JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio BRAD SHERMAN, California
JIM RYUN, Kansas GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio BARBARA LEE, California
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut JOSEPH CROWLEY, New York
VITO FOSSELLA, New York WM. LACY CLAY, Missouri
GARY G. MILLER, California STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota JOE BACA, California
TOM FEENEY, Florida JIM MATHESON, Utah
JEB HENSARLING, Texas STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida AL GREEN, Texas
RICK RENZI, Arizona EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin,
TOM PRICE, Georgia
MICHAEL G. FITZPATRICK, BERNARD SANDERS, Vermont
Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California
Robert U. Foster, III, Staff Director
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California DENNIS MOORE, Kansas
STEVEN C. LaTOURETTE, Ohio CAROLYN B. MALONEY, New York
MARK R. KENNEDY, Minnesota STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina EMANUEL CLEAVER, Missouri
TOM PRICE, Georgia DAVID SCOTT, Georgia
MICHAEL G. FITZPATRICK, DEBBIE WASSERMAN SCHULTZ, Florida
Pennsylvania GWEN MOORE, Wisconsin
GEOFF DAVIS, Kentucky BARNEY FRANK, Massachusetts
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio
C O N T E N T S
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Page
Hearing held on:
June 29, 2006................................................ 1
Appendix:
June 29, 2006................................................ 33
WITNESSES
Thursday, June 29, 2006
Collins, Edwin J., President and Chief Executive Officer,
Lockheed Georgia Employees Federal Credit Union, on behalf of
the Credit Union National Association and the National
Association of Federal Credit Unions........................... 19
Ferris, Gregory J., Managing Director, Global Business Continuity
Planning, Morgan Stanley, on behalf of the Bond Market
Association and the Securities Industry Association............ 22
Gleeson, Robert, Vice President and Medical Director,
Northwestern Mutual Life Insurance Company, on behalf of the
American Council of Life Insurers.............................. 21
Parsons, D. Scott, Deputy Assistant Secretary for Critical
Infrastructure Protection and Compliance Policy, U.S.
Department of the Treasury..................................... 6
Yingling, Edward L., President and Chief Executive Officer,
American Bankers Association................................... 17
APPENDIX
Prepared statements:
Kelly, Hon. Sue W............................................ 34
Collins, Edwin J............................................. 35
Ferris, Gregory J............................................ 47
Gleeson, Robert.............................................. 53
Parsons, D. Scott............................................ 58
Yingling, Edward L........................................... 66
Additional Material Submitted for the Record
ABA Toolbox on Emergency Preparedness........................ 74
Written Statement of Andrew J. Cataldo....................... 195
PANDEMIC INFLUENZA PREPAREDNESS
IN THE FINANCIAL SERVICES SECTOR
----------
Thursday, June 29, 2006
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2128, Rayburn House Office Building, Hon. Sue W. Kelly
[chairwoman of the subcommittee] presiding.
Present: Representatives Kelly, Price, Gutierrez, Cleaver,
and Scott.
Chairwoman Kelly. This meeting of the Subcommittee on
Oversight and Investigations will come to order.
Good morning, all of you. I am very pleased to welcome our
guests to this hearing of the subcommittee.
This morning, we will discuss the state of preparedness in
the financial services sector for an influenza pandemic. We are
all aware of growing awareness and concern over bird flu and
its potential development into a global pandemic.
The term ``bird flu'' is used for a type of influenza
common among wild birds and easily transmitted to domestic
fowl, and as such, is a major concern to the poultry industry.
In its present genetic form, it can be transmitted from
birds or other host animals to humans, and can cause very
serious illness and death. It is a most critical health
concern, however, with its potential problem to mutate into a
form that could readily pass from human to human.
Should this mutation occur and should the disease then
spread widely throughout the globe, we would face a true
pandemic, something we have not dealt with in this country
since 1918.
Presently, the H5N1 strain of the avian flu has not become
a pandemic. It has, however, cropped up in humans in various
locations, primarily in Asia.
Since the World Health Organization started tracking it
closely nearly 4 years ago, 228 human cases have been
identified, and 130 of those individuals have died.
Even though the H5N1 strain is not widespread, its very
existence and potential puts the world on notice that the
danger for a real pandemic exists here and now.
The attacks of 9/11 and Hurricane Katrina have shown the
government and the private sector a need to plan for
catastrophic events before they strike.
I am very pleased to note that our domestic financial
services sector took up the preparedness planning challenge
early on, and working with the Federal Government, have made
major advances in preparation and planning.
I am also very pleased by the spirit of cooperation between
the public and private sector, as well as the leadership shown
by the Department of the Treasury on this vital issue.
The past clearly is a prologue, and our witnesses today
represent financial services businesses, a sector of our
economy which has had the vision to champion the need for
preparedness.
I applaud you in this sector and the whole sector for this
leadership.
To start our discussion of preparedness and planning, we
will begin with Scott Parsons, the Treasury's Deputy Assistant
Secretary for Critical Infrastructure Protection and Compliance
Policy. That's a real mouthful.
Mr. Parsons will be followed by a four-person panel
representing key components of the financial sector.
First, we will hear from Ed Yingling, head of the American
Bankers Association. Then, we have Edwin Collins, president and
CEO of the Lockheed Georgia Employees Federal Credit Union.
Next is Dr. Robert Gleeson, medical director of the
Northwestern Mutual Life Insurance Company, and finally, we
have Gregory Ferris, managing director for Global Business
Continuity Planning at Morgan Stanley.
I now turn to the ranking minority member, Mr. Gutierrez
from Illinois, for his opening remarks.
Mr. Gutierrez. Good morning, and thank you, Chairwoman
Kelly, for holding this hearing on pandemic influenza
preparedness in the financial services sector.
I think we have two very good panels of witnesses today to
give us a good broad perspective on the topic.
I would like to point out for the record that because of
yesterday's official merger of the Bond Market Association and
the Securities Industry Association, today the committee will
hear, for the first time ever, testimony given on behalf of the
newly formed Securities Industry and Financial Markets
Association.
Let me be the first to welcome SIFMA to the House Financial
Services Committee.
We all know that a pandemic in the United States from the
bird flu, or any other strain of influenza, is a possibility,
not a certainty, but it could happen here, with devastating
results, and we want to be prepared.
No one person or institution has all the answers. That is
why it is so important for us to get together in forums like
this one and have an open non-partisan dialogue.
The estimates of possible effects of pandemic on the United
States vary widely. Some studies estimate around 90,000 deaths
will occur, while others bring the toll as high as 2 million.
These numbers are staggering.
The estimated economic impact on the United States ranges
from $71 million on the low end, to as high as $675 million.
Of course, priority one in a pandemic would be to reduce
the cost in terms of human life. A stable economy would play a
vital role in helping citizens cope with the distress and
uncertainty.
Even more than that, the American economy is a symbol of
our vitality and stability not only to our own citizens, but to
the world. A strong financial services system is essential to
achieving economic stability and a quick recovery.
I am proud to say that an organization from the City of
Chicago, Chicago First, has been at the forefront of ensuring
that our financial services sector is prepared for a pandemic.
Chicago First is a coalition of financial institutions,
partnered with State, local, and Federal Governments, to focus
on the resiliency of the Chicago area business community.
Chicago First was acknowledged by Congress as a model in the
2004 legislation implementing the recommendations of the 9/11
Commission.
In that legislation, we urged the Treasury Department to
work to form similar organizations around the country. As a
result, similar organizations have been formed in Minneapolis.
California, and Florida.
Due to a scheduling conflict, Chicago First will be unable
to participate today. The organization would like to submit
written testimony. I think they have something of value to
bring to this debate.
Therefore, Madam Chairwoman, I ask unanimous consent that
Chicago First be allowed to submit written testimony for the
record.
Chairwoman Kelly. Thank you.
Mr. Gutierrez. No. I ask unanimous consent that Chicago
First be allowed to submit written testimony for the record.
Chairwoman Kelly. With unanimous consent, so moved.
Mr. Gutierrez. I am looking forward to hearing from our
witnesses today. I am especially interested in hearing from
Deputy Assistant Secretary Parsons about the Treasury
Department's plan to coordinate and communicate with the
financial services industry during a pandemic.
Equally important is how the government and industry will
communicate with the public. For example, what instructions
will the Treasury Department pass along to financial
institutions to help them maintain adequate cash reserves, and
what steps can be taken to keep the public adequately informed
so we avoid a run on cash.
I believe we have learned some important lessons from the
color coded terrorist threat system, and we should apply these
lessons in our preparedness.
I am also interested in hearing from Deputy Assistant
Secretary Parsons on how we plan to address the issue faced by
our citizens who do not have bank accounts, yet still need
access to basic financial services like the ability to cash a
weekly paycheck. How can we be sure that the money services
businesses will have access to adequate cash during a pandemic?
If not, how will working Americans without bank accounts be
able to obtain cash?
I yield back the balance of my time, Madam Chairwoman.
Chairwoman Kelly. Thank you, Mr. Gutierrez. Mr. Price?
Mr. Price. Thank you, Madam Chairwoman, very much. I
appreciate you and Chairman Oxley and your staffs working hard
to bring this pressing issue before the committee.
As was mentioned, since 2003, there have been 228 reported
cases and 130 deaths resulting from avian flu and a mortality
rate of greater than 50 percent.
Federal and World Health officials suggest that in the
event of a human avian influenza pandemic, businesses should
assume that 40 percent of their employees will be sick or
absent at any one time for a period of at least 2 months. This
could result in the loss of critical infrastructure, including
in the financial services arena.
We all remember the SARS epidemic that occurred, but there
is a key difference between the avian influenza and SARS,
severe acute respiratory syndrome, in that a person with avian
influenza may be asymptomatic but contagious and the incubation
period for the avian influenza appears to extend for as long as
17 days after exposure.
In December 2005, the U.S. Departments of Homeland
Security, Health and Human Services, and Commerce joined to
issue an open letter to businesses.
In it, they say, ``Your business should develop specific
plans for the way you would protect your employees and maintain
operations during a pandemic. Companies that provide critical
infrastructure services such as power and telecommunications
also have a special responsibility to plan for continued
operation in a crisis and should plan accordingly.''
Financial institutions like those represented on today's
panel represent the backbone of the America economy, and we
must work to protect them accordingly.
For these reasons, I think it is important that this
committee exercise its oversight responsibilities to ensure
that government agencies are properly planning and educating
the private sector on the need to do the same.
I want to thank each of the panel members for joining us
today and bringing their expertise. As Mr. Gutierrez has noted,
there are others who have some great knowledge in this area,
and I would also request unanimous consent that a written
statement from the law firm of McGuire Woods be allowed to be
submitted into the record.
Chairwoman Kelly. With unanimous consent, so moved.
Mr. Price. Thank you. I want to thank again the chairwoman
for her work in bringing this forward, and I look forward to
the testimony of the panel members.
Chairwoman Kelly. I would also ask unanimous consent that
the written testimony of National Association of Securities
Dealers be submitted for the record.
Mr. Scott?
Mr. Scott. Thank you, Madam Chairwoman. Again, I want to
commend you for your sterling leadership on this committee and
for what you have contributed, and it is a pleasure working
with you and other members of the committee, and with the
ranking member, Mr. Gutierrez.
To review efforts by the government and the financial
industry to prepare for the flu pandemic as well as other
natural disasters, we need only look back to the destruction
caused by Katrina to see the need for disaster planning--
effective, meaningful disaster planning.
An example of health emergencies can be found in the
anthrax attack and scare that we had in our own office
buildings right here in Washington, which were evacuated for
weeks due to contamination fears.
Today's hearing deals specifically with pandemic flu, but
lessons learned could also apply to terrorist induced health
emergencies, or energy blackouts.
I certainly commend all of the Federal agencies who are
working with the financial services industry to plan for flu
pandemic emergencies.
Based on the written testimony that I have had a chance to
review earlier, this has definitely been given your very
serious, serious attention, and we appreciate it.
We need to continue to game out these threats and others
that may cause disruptions to our financial system. Some of the
failures of 9/11 were not due to awareness of the threat of
terrorism but rather due to a failure in the planning to take
terrorism seriously, and boy, have we paid the price for that.
I would also like to say a special word of recognition at
this time if I may, Madam Chairwoman. We have one of my
distinguished constituents here from Lockheed Georgia, and
while I am on that subject, let me give great congratulations
for our recent procurement of 20 F-22 fighter pilot planes, and
all the great work that Lockheed Georgia is doing to keep, and
make, this Nation safe and secure with our major and
significant air superiority, and it all comes from my district,
and that is Mr. Ed Collins, president and CEO of Lockheed
Georgia Employees Federal Credit Union, and our credit union is
celebrating its 55th year of service.
Might I add, Madam Chairwoman, that my very first job was
at Lockheed Georgia. I am very proud of that.
He represents over 86,000 credit union members, many of
whom live in my new district. Mr. Collins has been involved in
credit union business for 42 years, including as an examiner
with the National Credit Union Administration, and I am glad to
have him.
There are three questions that I think are very important
for us to examine as we go forward.
One, what system is in place for bank customers who do not
have Internet banking access, or if Internet service is
interrupted during a health emergency?
Two, what lessons have we learned from Katrina on
interruptions of our banking services?
And three, since Atlanta, Georgia is the home of the
Centers for Disease Control, it is important for us to discuss
here today whether they have been fully involved in flu
pandemic planning and discussion.
That is just three of the areas we want to cover, among
others.
Thank you, Madam Chairwoman. It has been a joy working with
you on this committee, and I look forward to the testimony.
Thank you, ma'am.
Chairwoman Kelly. Thank you, Mr. Scott. Mr. Cleaver, do you
have an opening statement?
Mr. Cleaver. Thank you, Madam Chairwoman. Good morning to
you and the panelists. I read a couple of editorials yesterday
that did not exactly cause me great joy. One talked about the
approval waiting at Congress, and the other talked about the
decline of Congress because we did not deal with waiting
issues.
This is one of the kinds of issues that I came to Congress
to help solve. To the panelists who are here, this is one of
the issues that I think the public intends to have us deal
with.
I, like many Americans after 9/11 in 2001, saw some
devastation of our financial sector. Then we saw it again in
the aftermath of Hurricanes Katrina and Rita.
I am fully convinced, both theologically and politically,
that we cannot halt natural disasters, but I do think that we
can be prepared to respond in the aftermath.
As a Member of Congress, I believe that it is incumbent
upon this body to fully prepare for all of the challenges that
our Nation may face.
I look forward to hearing your testimony and to becoming
involved biologically as we struggle with one of the major
issues that could face our Nation.
Thank you, Madam Chairwoman.
Chairwoman Kelly. Thank you, Mr. Cleaver.
Let me just say without objection that all members' opening
statements are going to be made part of the record.
You will be recognized for a 5-minute summary of your
testimony. Mr. Parsons, I do not know if you have testified
before, but the little black box on there has lights. It will
light up green, you have 5 minutes. Yellow is a caution, just
like it is with a stop light, and the red means exactly what it
says.
We try to keep it in some kind of a framework because many
people are trying to move in here.
With that being said, let me simply introduce you. Mr. D.
Scott Parsons, Deputy Assistant Secretary for Critical
Infrastructure Protection and Compliance Policy at the U.S.
Department of the Treasury.
Mr. Parsons, we look forward to your testimony today.
Please proceed.
STATEMENT OF D. SCOTT PARSONS, DEPUTY ASSISTANT SECRETARY FOR
CRITICAL INFRASTRUCTURE PROTECTION AND COMPLIANCE POLICY, U.S.
DEPARTMENT OF THE TREASURY
Mr. Parsons. Thank you, Chairwoman Kelly, Ranking Member
Gutierrez, and members of the subcommittee.
I appreciate the opportunity to speak to you about the
Treasury Department's contribution to pandemic planning within
the financial services sector.
Although the Treasury's efforts are just a small part of
the enormous Federal effort, we have, indeed, been very active.
I am pleased to report that the financial services sector
has undertaken significant steps toward ensuring its resilience
to withstand both manmade and natural disasters.
President Bush has led the overall development and
implementation of an effective program to defend our country's
critical infrastructure.
I note that we have experienced a number of events in
recent years that have tested our resilience, the attacks of
September 11, 2001, the power outage of August 2003, and the
elevation of the threat level for the financial sector in
August 2004, all tested the preparedness and resolve of the
sector. Most recently, Hurricane Katrina caused unprecedented
devastation in multiple States.
Yet, the American financial system survived each of these
events, and through hard work and investment, became stronger
and better able to contend with such disruptions.
We have developed a two pillared structure within both the
public and private sectors to support the Treasury's efforts to
safeguard the financial services sector.
The first pillar is the Financial and Banking Information
Infrastructure Committee, which is chaired by the Treasury's
Assistant Secretary for Financial Institutions, and is
comprised of the Federal and State financial regulators.
The second pillar is the Financial Services Sector
Coordinating Council, comprised of the leading financial
services institutions and trade organizations.
I would add that we also rely on the Financial Services
Information Sharing and Analysis Center or FS-ISAC, to
communicate with the sector during a crisis.
I want to take a brief moment to commend my colleagues in
FBIIC and some of the private sector members that you will be
hearing from on the second panel. We have been working very
closely together and truly, their leadership on this subject
has been both inspiring and extremely helpful.
We know that pandemic influenza is a very serious threat.
This past May, the President released the National Strategy for
Pandemic Influenza, which is a comprehensive plan that outlines
how we, as a Nation, can prepare for, detect, and respond to a
potential pandemic.
The plan directs the departments and agencies of the
Federal Government to first protect their employees, to ensure
continuity of operations, and to support the overall Federal
response to a pandemic, and also asks departments to
communicate pandemic preparedness and response guidance to
their stakeholders, including the public and private sectors,
and State and local governments.
Today, I am here to discuss the efforts of the Treasury to
prepare the stakeholders in the financial services sector for a
pandemic.
We have been very active in this area. We based our
activity on principles. Our principles guide our leadership,
and they include that our planning effort will be based on
medical science, which is provided by experts outside of the
Treasury.
Our planning efforts will emphasize the protection of the
lives and safety of our fellow Americans. It will emphasize the
importance of business continuity within financial firms, and
it will recognize the interdependencies needed to sustain
operations during an outbreak of a pandemic.
We have been working very closely with our FBIIC and FSSCC
colleagues. Among other things, we have created a FBIIC working
group to focus on pandemic influenza. We have been inviting top
medical experts to address joint meetings between the FBIIC and
the FSSCC. We have also been working to encourage the FS-ISAC
effort, and they, in turn, have formed a working group on
infectious disease.
We have been conducting a joint FBIIC/FSSCC outreach
campaign that will reach over 21 cities by year end, and most
recently, we have been holding exercises with Federal, State,
and local officials and the financial sector to prepare for a
pandemic.
There are a number of preparedness actions that should be
taken. Among those for consideration are efforts to mitigate
and contain the spread of a pandemic within a business, to cope
with a likely increase in employee absenteeism, and to ensure
that the internal information technology necessary to support a
plan is in place and has been tested.
Finally, to address independencies, which includes reliance
on telecommunications, transportation, and energy.
We are also looking closely at economic impacts, the
estimates of which vary greatly. I can assure you that our
economy is very strong and highly resilient, and it is very
difficult to predict exactly what the economic impact of a
pandemic would be.
Again, I thank you for allowing me the opportunity to
testify before you today, and I look forward to your questions.
[The prepared statement of Mr. Parsons can be found on page
58 of the appendix.]
Chairwoman Kelly. Thank you, Secretary Parsons.
In reading your testimony, I am going to start with a
couple of questions here. It seems to me that Treasury is
appropriately responding in a proactive way. I appreciate the
fact that in your testimony, it appears that you are thinking
about all sectors of the economy, not just those that have
standard financial structures. You are looking at money
transfers and check cashing and things like that as well to
make sure people who have no banking facilities are still able
to have access to cash, and you are also looking at cash. I
really appreciate the depth of what you are doing.
In your testimony, it seems that you have been working very
carefully with all of the financial service regulatory people
of the private sector, but this hearing is the first time that
we have actually had any interaction with you on this topic.
There is nothing in your testimony that mentions anything
about keeping Congress informed about what you are doing.
I want to know what plans you have to keep this committee
and other interested Members of Congress fully involved in the
process and aware of what's going on. I think it would benefit
your efforts somewhat to be able to do that.
Mr. Parsons. Certainly, Chairwoman Kelly, we are open to
your suggestions as to how best to keep this subcommittee, as
well as the Financial Services Committee, as a whole, informed.
I would just say that we are pleased to discuss our efforts
with you and any of the other committee members at any time you
wish.
Chairwoman Kelly. I am glad to have that on record. I would
hope that there would be a way that you could almost on a
regular basis report back to the Financial Services Committee
and its members, its interested members, so that we can stay
abreast of what is likely to be out there.
The next question I have is that I would like to know to
what extent the OTFI, the Office of Terrorism and Financial
Intelligence, has been involved in developing the regulatory
response that you have to the possible financing of terrorist
efforts that might benefit from this disease.
Have you been working with them, and to what extent?
Mr. Parsons. Our efforts to protect the financial critical
infrastructure, the financial sector, and to prepare it for a
pandemic, have been conducted primarily from the Office of
Domestic Finance, and specifically from the Office of Critical
Infrastructure Protection and Compliance Policy. That effort is
focused with our other financial regulators.
Certainly, we are working within our FBIIC structure, but
we have not to date, although TFI internally and Treasury is
fully aware of our efforts to protect for a pandemic, we have
not engaged them at this point in a dialogue about regulatory
relief.
Chairwoman Kelly. It seems to me that might be a good
dialogue to have with them for a number of reasons. It would
not be impossible for a terrorist to strike if there is a
pandemic. It might be worth taking a look and talking with
them.
As a follow-up to that, as I was reading the Morgan Stanley
testimony, I was interested in the fact that they had
essentially a shadow organization set up that can step in as
needed. FS-ISAC and OTFI are both analysis driven. They are
both located here in Washington, D.C.
What is being done to enhance the redundancy in these
offices so that analysis can continue even during an outbreak?
Mr. Parsons. Chairwoman Kelly, what I can tell you is that
the Department, as directed by the national plan to prepare for
a pandemic, is working to ensure as one of our first priorities
that we can continually sustain our operations.
Certainly, OTFI is part of the Department of the Treasury,
and we have had an extensive effort underway to make sure that
not only Domestic Finance and OTFI, but all capabilities of the
Department can continue to function should we experience a
pandemic.
Chairwoman Kelly. Although it could lead to have an
infrastructure in place that is rapid and will not bog down
with a larger extent of communications, it would also mean--I
am talking about telecommunications. It also would necessitate
very secure networks, if you are talking about FSISAC and OTFI
communications, as well as some of the other communications
within Treasury.
Have you addressed that?
Mr. Parsons. As you know, there has been extensive effort
across the Federal Government to prepare for contingency, for
continuity of operations. What I can tell you is we have an
extensive, well-thought-out--actually just 2 weeks ago, we
tested our ability to operate from our continuity sites.
Some of the details of the sites, as you might naturally
understand, are really sort of close hold, and I am reluctant
to get into those in a public hearing.
We have thought through and tested extensively our ability
to operate from remote locations during crises.
Chairwoman Kelly. Perhaps you and I could have a further
private discussion about this.
Mr. Parsons. Sure.
Chairwoman Kelly. Thank you. We turn now to Mr. Gutierrez.
Mr. Gutierrez. Thank you very much. Mr. Parsons, during a
pandemic, we can anticipate that liquidity problems would be
faced by nearly all financial institutions. Many of my
constituents do not have bank accounts and rely on money
services businesses to cash their paychecks and make other
financial transactions.
I imagine that money services businesses will be among the
first in the financial industry to face liquidity issues. Many
of the customers who rely on MSB's are literally living
paycheck-to-paycheck.
What steps will Treasury be taking or recommending to
ensure that working families, from working class neighborhoods,
will be able to get their paychecks cashed during a pandemic?
Mr. Parsons. Mr. Gutierrez, that is an excellent question.
One of the things that we have learned through past experience
is that in the immediate aftermath of a crisis, in many ways,
the local economy turns to a cash economy.
I would just comment that the Federal Reserve has a very
well-developed and tested emergency cash system to supply cash
to those regions, those areas of the country that need it.
I would also state that system has been tested most
recently in Hurricanes Katrina and Rita. They have a well
developed system.
We feel it is a priority to ensure that everyone has
adequate supplies of cash, that everyone has the supply that
they need, and as such, are committed to making sure that cash
continues to flow during a crisis, be it a manmade crisis or in
this case, a pandemic.
Mr. Gutierrez. Mr. Parsons, in your opinion, what measures
should be taken to avoid runs on cash in the initial stages of
a pandemic?
Once a run on cash begins, what steps do you suggest to
stem the flow and halt the panic?
Mr. Parsons. I think one of the things that we focus on at
the Department of the Treasury is confidence, confidence in the
banking system. One of the best ways to ensure confidence is to
make sure that financial institutions remain open, that
services are available, that for example, cash is available,
and to that end, we believe confidence is a vital part of any
recovery effort to a crisis.
Our intention is that we will try to pre-identify all
needs, plan for those needs, and make sure that we are
instilling confidence that the financial system is up, running,
resilient, and will continue to function during crises as it
has in so many other crises that we have faced.
Mr. Gutierrez. Mr. Parsons, both you and I agree that one
of the first things that will be tested is liquidity issues. I
certainly hope that you have them in place. We know there is
going to be a run on cash in this country and it is going to be
very, very comforting that people are going to be able to go to
their financial institutions in a run.
Thank you, Mr. Parsons.
Chairwoman Kelly. Thank you, Mr. Gutierrez. Mr. Price?
Mr. Price. Thank you, Madam Chairwoman. I want to thank
you, Mr. Parsons, for your testimony.
I would make just a few comments. The examples that you
used of 9/11 and the power outage of 2003, the elevation of the
threat level in 2004, and Hurricanes Katrina and Rita, were
very significant events, each and every one of them.
I would respectfully suggest that the consequences of a
true pandemic would make these emergencies pale in comparison.
I am hopeful that the kind of planning that is going into
the work that you are doing, and others are doing, recognizes
and appreciates, and I know they do, appreciates the
consequence of the worst case scenario that we are discussing.
I am comforted by the fact that you all are going to rely
on science. That is very comforting for a quasi-scientist, as a
physician.
You had stated that you rely on the Financial Services
Information Sharing and Analysis Center to communicate with the
financial services sector during a crisis.
I am interested in what triggers the crisis. What kind of
information or what kind of event triggers a crisis?
Mr. Parsons. Mr. Price, it could be a number of things. We
have used the FS-ISAC on a number of occasions in the past, for
the London bombings, for example--any event that we believe
rises to significant events and is potentially a threat to
financial services.
I would just add that communications is a vital part of our
strategy, both to share information about a crisis, to share
information about a pandemic, and it is also a vital part of
our strategy to instill confidence in the system.
If we can communicate with each other, I think we have a
much--we have found that we can respond collectively and much
more quickly and in a much more coordinated fashion that in
turn instills confidence with our business partners, with our
customers, etc.
To answer your question, the trigger as it relates to
pandemic, we believe that trigger is going to be best
determined by the health professionals. We would simply look
for some indication from the medical experts as to what they
believe to be efficient human-to-human transmission of the
virus, efficient and sustainable human-to-human transmission of
the virus.
We would look first to them, and once that determination is
made by those who are expert in that field, then we would
absolutely utilize and activate our communications systems.
I might add that it is not only the FS-ISAC, but the
regulators have a well developed system to communicate with
their regulated entities. FSSCC, the organizations that
comprise FSSCC also have well developed communication protocols
and each of those organizations has communication mechanisms.
We have, in fact, built in a certain level of redundancy in
our communications, but all of these things would be activated
during a crisis.
Mr. Price. When you say you look to the medical folks to
determine that, to whom do you refer? Is it CDC?
Mr. Parsons. If you look at the national strategy for a
pandemic, they talk specifically about a collection of health
officials, to include the WHO, input from the--
Mr. Price. How do you get that information? If they say
that in fact we have stepped over the line and the event is
indeed occurring, how do you get that information? What is the
structure that is in place to inform you?
Mr. Parsons. We are notified. We are obviously in close
contact with the Homeland Security Council, which is leading
this effort. We have an ongoing dialogue. In fact, we
participate in a number of working groups.
We would expect notification to come through that
organization.
Mr. Price. I want to touch briefly on the issue of
confidence that you discussed. I think it is remarkably
important. Confidence in our system occurs because people sense
it to be fair. The facilities are open. They have access to the
services.
One of the things that gives them that confidence is the
regulatory activities, and if we have a significant decrease in
workforce reduction, then it may be, as you touched upon, that
regulatory activities need to be altered.
What kind of plans are in place should you have, for
example, a 40 percent workforce reduction for a significant
period of time?
Mr. Parsons. Mr. Price, as you noted in your opening
statement, a pandemic certainly is an unique event. It is going
to affect the entire country.
As I have mentioned, we have been working closely with our
colleagues on the Information Infrastructure Committee, which
is comprised of the Federal and State banking regulators.
What I would say to you is that the regulators have a
strong track record, most recently in Hurricane Katrina, of
working with their regulated entities to identify problems and
to provide regulatory relief.
I know that they are considering actions related to what
they would have to do. I would just tell you that is something
that is under consideration among the financial regulators.
I would be reluctant to speak for them because as you might
imagine, there are a number of different issues that come up,
issues with credit unions versus banks versus securities firms.
I can tell you that within the FBIIC and within our working
group, that is a matter that has been raised as an issue that
we would want to plan for.
Mr. Price. My time has expired. Thank you.
Chairwoman Kelly. Thank you, Mr. Price. Mr. Scott?
Mr. Scott. Thank you, Madam Chairwoman.
Let me ask you if we have a real good handle on what would
be the most fierce scenario that could happen as a result of
this panic in preparing and planning, to kind of look at a
model of what really could happen.
The most significant area would be within the area of human
resources. If a flu epidemic happens, the most important thing
is to keep people apart from one another, which means there
would be a greater emphasis on telecommuting, and dealing over
the Internet.
The first question is are we capable of doing that? Do we
have that in place? What are we doing to prepare ourselves for
telecommuting, and particularly, are we satisfied that the very
sensitive issues and sensitive areas of financial data and
breach possibilities--what are we planning to do with that in
terms of our preparedness to make sure the data is secure?
Are we where we need to be in terms of telecommuting? What
are the plans in place to increase that infrastructure?
Mr. Parsons. Mr. Scott, I do believe that we are capable of
executing a telecommuting plan, but it does require pre-
planning. It does require us to think about these issues in
advance.
First of all, it is important--I am encouraged because I
have talked to a number of financial services firms. It is
something that we talk about in our dialogue with them, with
the regulators, with the private sector, but the need to
identify what type of information technology infrastructure you
will need to support a telecommuting plan, a working from home
plan, and that is vital because without the proper
infrastructure, you can imagine you could quickly overwhelm a
firm's ability to handle the type of Internet traffic, for
example, that may come in.
Along with that planning, and one of the things that we
talk about, is the need to extend the internal controls that
financial services firms already have in place at their
headquarters to those who would be working from home.
One additional thing that is very important. It is
important to look at what functions could be performed at home
and then to think about how you would want those functions to
be performed.
In other words, can you stagger them? Do you need all
functions performed at one time? Can you have one group work
from say 8:00 to 10:00 a.m., and the next group from 10:00 to
12:00 p.m.?.
It is important that these things be considered up front. I
am encouraged that a number of firms have already begun
consideration of this, and I know that a number of firms have
begun implementing the information technology needed to support
that effort.
Mr. Scott. Is there a system in place for those banking
customers who do not have access to the Internet, who are not
wired in? That is a very serious case in this country. What
about them?
Mr. Parsons. Our objective is to--what we talk to financial
institutions about is the importance of sustaining operations.
First of all, is the importance of protecting employees, but
also the importance of sustaining operations.
To the extent that they can do that, we would hope that, to
some degree, it would be business as usual for their customers.
Some of whom, as you know, can access services through the
Internet, but many of whom still utilize ATM networks, branch
offices, etc.
Mr. Scott. Telephone.
Mr. Parsons. Telephone.
Mr. Scott. I represent Georgia, of course, and that is the
home of the CDC, probably at the epicenter of any flu pandemic.
They certainly need to be involved in the planning early on.
Can you give us an assessment of what you have done to
involve the CDC in the planning and preparedness for a
pandemic?
Mr. Parsons. Certainly. We recognize the CDC as one of the
leading authorities certainly on infectious disease and
pandemic. We have worked very closely with them, Mr. Scott.
In fact, most recently, just this past week, we had an
exercise in Miami, Florida, with our regional coalition,
Florida First. As part of the team on that exercise, we had a
distinguished medical expert from the CDC who flew down from
Atlanta and was a participant in that exercise.
I might add that the exercise was a tremendous success.
Again, it goes back to our efforts to prepare and instill
confidence.
We had a dialogue with the CDC. They certainly are working
closely with the Homeland Security Council, and with the White
House. We intend to keep them engaged.
Mr. Scott. That is full cooperation; there is no problem
there.
Madam Chairwoman, if I can ask one last question. With the
recent stories of the sensitive data being stolen from laptop
computers such as the Veterans' Administration and Equifax,
again, from Georgia, have you discussed the need for extra data
protections in the case of a flu pandemic, and I am
specifically thinking about an expanded telecommuting program,
other scenarios in which sensitive data may need to be removed
from the workplace.
Mr. Parsons. We have indeed thought about the issue of data
security, and again, our firm thought and in talking with
financial firms is the need to extend the proper controls, the
controls that are in at the office place to those who would be
working from home, and consideration of their access to data,
sensitive data, and make sure that the walls that currently
exist at the office are indeed in place for that program.
Mr. Scott. We had two bills that are moving through on data
protection, one through our committee here, and one through
Energy. I am wondering if you weighed in on that.
Do you feel satisfied that this issue is being handled
properly through the legislation that is moving through the
committees, and if so, do you have a preference for which bill?
Mr. Parsons. Mr. Scott, we certainly take identity theft
and data security at the Department of the Treasury very
seriously. However, I am not prepared to comment on that at
this hearing this morning.
Mr. Scott. All right. Thank you.
Chairwoman Kelly. Thank you, Mr. Scott.
If the committee will indulge me, I would like to do just
one follow up on that line of questioning, in terms of capacity
of the system.
We had a transit strike in New York City. We have had
experience with terrorist acts in New York City. Many companies
were set up to do the at-home kind of workforce system. The
problem was that the capacity of the infrastructure for at-home
telecommuting was not robust enough, that it really sags in
time. That is the nature, I believe, of your concern, Mr.
Scott. That was a question that I had asked previously.
I hope, Mr. Parsons, that the Treasury Department is
looking at what is needed, because if that system sags so much,
it could stop, it could jam.
It is a serious concern when you have a pandemic. Have you
looked at that?
Mr. Parsons. Absolutely. It certainly is a major concern of
ours. I think the top two that always come to mind are
absenteeism, and if we do have a work-at-home plan, are we
going to have the bandwidth, the capability to work?
We have thought about this problem in a couple of ways. One
is we tried to think about what we can really truly impact
within the financial services sector, and that is the
information technology structure within the firm, first and
foremost. Let's make sure that is robust enough to handle the
traffic.
One of the things that we have learned is that in some
cases, the routers and servers are not adequate, even though we
have people who work at home, they are not adequate to handle a
large number of people, and the problem can be at the
enterprise level. We encourage a strong, hard look at that.
The second part of the problem is the telecommunications
infrastructure. We have raised this as a concern. We know that
the national communications system within the Department of
Homeland Security is taking a look at the overall bandwidth
issues that are out there. Certainly, many of the issues
revolve around the last mile access to homes.
We are hopeful that they will--I know they are looking at
the problem right now, and we are hopeful we will have some
guidance on that soon.
Chairwoman Kelly. That is good news. We have been called
for a vote, but we have time for Mr. Cleaver's questions, and
let's proceed.
Mr. Cleaver. Thank you, Madam Chairwoman. This is a very
elementary question, but I learned from Katrina that we
sometimes deal with the large issues and forget where the keys
are that drive the car.
In the event of a problem, a pandemic, who flips the switch
that informs the financial services sector that we are in
pandemic mode? Who says it? Whose responsibility is it?
Mr. Parsons. To the question of whether we are facing a
pandemic, human-to-human transmission of the H5N1 virus or
another virus, again, we would look first to the medical
community.
Mr. Cleaver. Only because we are rushing, I apologize for
interrupting you. I am respectfully not looking for a
community. I am looking for the person. Who flips the switch?
Who says it? If something happens today, does George do it?
Does Willie down in the basement? Does CDC in Atlanta? Who does
it?
Mr. Parsons. Once a determination has been made that we
face human-to-human transmission, it is sustainable and
efficient, then we, the Office of Critical Infrastructure
Protection, would activate our communications mechanisms to
include the FBIIC, FSSCC, and FS-ISAC. We would activate all
those mechanisms and notify the financial sector that this
determination has been made and begin to take appropriate
action.
Mr. Cleaver. You would also be responsible for giving the
``all clear'' signal as well?
Mr. Parsons. We would use those same mechanisms once the
determination has been made by the medical community to further
relay that information.
Mr. Cleaver. I would really like to get into this more, but
I think I better go vote.
Chairwoman Kelly. Mr. Cleaver, we have only had the one
call. We can wait until the second bell if you want to continue
your line of questioning. It is a good one.
Mr. Cleaver. I do. There is a system in place right now
today, as we are here in this hearing room, that if we find out
tonight, we can confirm the avian virus is spreading across
this country, you can pick up the phone and put things in place
in a matter of seconds?
Mr. Parsons. That is correct. We have multiple
communications mechanisms and we have exercised those in the
past. They have been tested. We can reach a vast majority of
the financial sector within seconds or minutes, as you note.
Again, they have been tested by previous events, and we
also occasionally run drills on that very activity.
Mr. Cleaver. That was my second question, whether or not
you have had drills to make sure that it is, in fact, operable.
Mr. Parsons. Yes, we do. I would note that the FS-ISAC runs
a monthly drill of their emergency notification system, which
uses a dial, it is called a SIN system, but it goes through a
number of actions.
It starts with your cell phone, your home phone, your
office phone, and your e-mail. It goes through all of those
things to reach its members. That is done on a monthly basis.
Mr. Cleaver. Does the financial services sector--have they
been given any guidance on what steps they should take, once
they are notified?
Mr. Parsons. We have been working again to develop
preparedness plans for a pandemic. Most people have agreed that
when they see human to human, again, efficient sustainable
human-to-human transmission, that has generally been thought of
as a sign that they need to begin to enact their preparedness
measures.
The answer is yes, once the communications go down, people
will swing into action with their continuity plans. Many of the
plans have different levels. They have some flexibility built
in. Generally, they will begin the process of preparing for a
pandemic.
Chairwoman Kelly. Thank you very much, Mr. Cleaver. The
Chair and some members may have additional questions for you,
Mr. Parsons. Without objection, this hearing will be held open
for an additional 30 days for people to submit written
questions and to place the responses in the record.
Thank you very much for the generous amount of time you
have given us this morning. With that, we will excuse this
panel, and we will adjourn.
We have three votes. I would imagine it will probably be
about 20 to 25 minutes before we will empanel the second panel
of witnesses.
We thank you. You are excused. Thank you very much, Mr.
Parsons.
Mr. Parsons. Thank you, Chairwoman Kelly.
[Recess]
Chairwoman Kelly. Thank you for your patience. Other
members are still in the process of voting and will be down
here shortly.
I now want to introduce our second panel. We have Mr.
Edward L. Yingling, president and chief executive officer of
the American Bankers Association. We have Mr. Edwin J. Collins,
president and chief executive officer of Lockheed Georgia
Employees Federal Credit Union.
Mr. Collins, I know that Mr. Price wanted to introduce you.
He is coming back at some point. I am going to interrupt the
proceedings so that he can talk about his relationship with
you.
Then we have Dr. Robert Gleeson, vice president and medical
director of Northwestern Mutual Life Insurance Company, and Mr.
Gregory Ferris, managing director, Global Business Continuity
Planning at Morgan Stanley.
Without objection, your written statements will be made a
part of the record. You each will be recognized for a 5 minute
summary.
Mr. Price, I am just in the process of introducing the
second panelists, so if you would like to introduce Mr. Edwin
Collins, we would be happy to hear from you.
Mr. Price. I apologize for being late. I welcome all
members of the second panel. I just want to highlight Mr.
Collins.
When you have a successful entity in your community, there
are a lot of moms and dads. Lockheed is one of those. As
Representative Scott described earlier his association with
Lockheed, Lockheed also is in my district, and many of the
individuals who work there, the employees who work there, live
in my district, and many of them are participants in the
Lockheed Employees Credit Union.
As I am sure you mentioned, Mr. Collins joined the Credit
Union in 1984 as vice president and chief financial officer,
and was promoted to president and CEO in 1995. He is the
current chairman of Cooperative Services, Inc., a statewide
credit union service that processes 90 percent of all share
draft clearings for credit unions for all of the States.
The financial services community, as we have heard, is
maybe significantly impacted by this, and clearly, the
pandemic--I am interested in hearing about the private sector
responses and preparation. I look forward to the testimony of
Mr. Collins and the others on this panel.
Thank you, Madam Chairwoman.
Chairwoman Kelly. I thank you very much. We will now begin
with you, Mr. Yingling.
STATEMENT OF EDWARD L. YINGLING, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, AMERICAN BANKERS ASSOCIATION
Mr. Yingling. Thank you, Madam Chairwoman, and members of
the subcommittee. My name is Edward Yingling, and I am
president and CEO of the American Bankers Association.
Thank you for the opportunity to present the views of the
ABA on the pandemic preparedness efforts of the financial
services industry.
Over time, bankers have successfully coped with a wide
variety of disasters, and will continue to deal with disasters
effectively in the future.
All banks have disaster recovery plans and well-tested
procedures and are revising them based on changing events and
new risks.
The ability of banks to withstand events such as 9/11 and
Hurricane Katrina is a testament to their preparedness. Banks
are now undertaking the steps that will be necessary if a
pandemic should occur.
No one knows whether the avian flu virus will mutate into a
strain communicable from human to human. What we do know is the
value of planning ahead.
Through our recently completed Emergency Preparedness
Toolbox, the ABA has provided each of our members with
resources to help them plan for a pandemic. The toolbox is
based in part on the collaborative efforts underway across the
entire financial services industry.
The Treasury Department and State and Federal bank
regulatory agencies are active partners in this effort.
While much of a bank's existing disaster and recovery plan
will be relevant during a pandemic, these plans will require
some important adjustments to address this new threat.
These adjustments to emergency plans include:
First, developing business continuity plans that take into
account the different phases of a potential pandemic.
Second, recognizing that high levels of absenteeism may
occur and establishing back up personnel coverage.
Third, planning for the fact that a pandemic will not be
limited to a specific geographic area, unlike other disasters,
which means that assistance may be slow or unavailable from
other parts of the country.
Fourth, anticipating disruptions in other key sectors of
the economy that banks rely on for support, which may cause
shortages of services and supply.
Fifth, developing pandemic communication programs for
employees, including the discussion of employee health and
safety issues.
And sixth, evaluating the need to upgrade and expand
telecommunications systems to maintain critical operations.
Central to the efforts underway to assist banks in their
preparedness is the work of the Financial Services Sector
Coordinating Council. This council consists of all the major
national financial trade associations, financial utilities, and
other important financial organizations across the banking,
insurance, and securities industries, and includes the ABA.
The Council's purpose is to coordinate critical emergency
activities in the financial services industry, and toward that
end, we work closely with the Treasury and the other financial
regulatory agencies.
The ABA is also a member of the Council's Infectious
Disease Forum. Many of the Council's efforts to assist
financial institutions in their pandemic preparations will be
accomplished in this Forum.
The goals of the Forum include: developing a home for best
practices and other planning information for all of our
members; developing preparedness guidelines that we can all
give to our employees; and collaborating with the public sector
to develop a common set of planning assumptions.
In closing, I would like to stress that we in the banking
industry have always recognized the critical role we play in
our communities and in the national economy during emergencies.
At the ABA, we are very proud of the way banks responded to
9/11 and to last year's hurricanes. Disaster preparedness is a
well known notion to banks, and when new threats, such as a
potential pandemic present themselves, our experience gives us
confidence that the banks will be prepared, not just for
themselves, but for their communities.
Thank you.
[The prepared statement of Mr. Yingling can be found on
page 66 of the appendix.]
Chairwoman Kelly. Mr. Yingling, I thank you for your
testimony. I have been taking a look at the ABA Toolbox, which
I have here in my hand. With your permission, if you do not
mind, I would like to ask unanimous consent to include the
Toolbox in the hearing record. Would that be all right?
Mr. Yingling. That would be fine.
Chairwoman Kelly. Fine. Then I ask unanimous consent to
include the Toolbox in the record, and so moved.
We thank you very much.
Moving next to you, Mr. Collins. Welcome.
STATEMENT OF EDWIN J. COLLINS, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, LOCKHEED GEORGIA EMPLOYEES FEDERAL CREDIT UNION, ON
BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION AND THE
NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS
Mr. Collins. Thank you, Madam Chairwoman. I have already
been introduced, so I will skip all that. I am here today on
behalf of the Credit Union National Association and the
National Association of Federal Credit Unions.
There are about 8,800 State and Federal chartered credit
unions serving approximately 89 million members in the United
States.
My credit union has over 86,000 members and assets that
total $552 million.
I want to commend the leadership of the subcommittee for
addressing readiness and preparation within the financial
services section.
I also want to recognize the Administration's effort to
develop a national strategy. I would like to specifically
commend the Department of the Treasury under the direction of
Secretary John Snow, for its efforts to coordinate disaster
planning, survival and recovery for the financial sector.
Both CUNA and NAFCU have been working on this important
issue to help educate American credit unions and their members.
Yesterday, as part of the Federal agencies' continual
efforts on this matter, representatives of Navy Federal Credit
Union and the American Association of Credit Union Leagues
participated in a lengthy meeting with Treasury, the Department
of Health and Human Services, and others to address specific
concerns relating to preparedness.
I also want to recognize the work of the Financial Services
Sector Coordinating Council, of which CUNA and NAFCU are
members.
Guidance from the Treasury Department and elsewhere has
indicated that financial institutions should develop at least a
first draft by this summer, and credit unions are seeking to
modify their continuity plans to address unique needs that
would arise.
Refining our plan is a priority at my credit union, and
something that my human resources staff have worked hard to
achieve.
Consistent with credit unions' tradition of member service,
our focus will be to ensure members have timely access to their
accounts.
The National Credit Union Administration Board has provided
important guidance to credit unions on this topic, consistent
with the other regulators.
Additionally, NCUA's efforts include review of credit
unions' preparedness as part of their examination process.
Guidance for examiners on disaster recovery issues, focusing on
records preservation, encouraging credit unions to increase
member access to their accounts via the Internet or other
electronic means, and encouraging increased use of the Treasury
Department's direct deposit program.
Continuity planning is a core element of preparedness and
financial institutions, including credit unions, have a solid
record in this area as a result of Y2K.
Thankfully, Y2K did not result in a broad-based disaster.
However, another recent event did--Hurricane Katrina.
In the first few weeks and months after Katrina hit, all
aspects of the credit union system, including credit unions
from States outside the hurricane area and credit union
leagues, NCUA, the national trade organizations, and State
regulators worked together to provide assistance and coordinate
relief efforts.
In fact, for many months, a displaced credit union from New
Orleans operated inside our credit union. We also took special
steps to make cash available to relocate credit union members
in our community.
A report earlier this month from the Federal Financial
Institution Examination Council indicates that generally,
business continuity plans for financial institutions in the
Katrina area worked well.
However, there were major difficulties experienced by
institutions in the area. Further, as had been widely
acknowledged, government entities with primary responsibility
for disaster response should have been prepared better, should
have responded quicker, and should have coordinated efforts
more thoroughly, and should have communicated with those
affected, as well as the rest of the Nation, in a more timely
and comprehensive manner.
Previous national tragedies such as the attacks of
September 11, 2001, and the bombing of the Federal building in
Oklahoma City in 1995, also reinforced, among other things, the
need for all financial institutions to maintain records
properly.
All of these disasters, apart from the range of human
issues, brought into focus a number of concerns for financial
institutions, including how to respond to members' needs for
cash, and how to meet compliance responsibilities.
They also gave us lessons learned that can be used to help
prepare for the pandemic. These include that financial
institutions must develop appropriate, well-tailored plans.
Financial regulators should continue providing guidance and
resources. Financial regulators should be proactive in
communicating information to their institutions.
The financial sector should continue its coordination
efforts and develop best practices for all sizes of
institutions.
Financial institutions must keep themselves informed of all
developments regarding the pandemic. Financial regulators
should provide limited but reasonable leeway to impaired
institutions regarding compliance responsibilities.
Financial regulators should work with Congress to
facilitate the use of electronic access to accounts, and all
levels of government must coordinate and communicate on a
timely basis among all levels of government.
While financial institutions are preparing, numerous issues
remain, which I will be glad to address during your questions.
Thank you for the opportunity to provide our views, and
again, I commend the subcommittee for this review.
[The prepared statement of Mr. Collins can be found on page
35 of the appendix.]
Chairwoman Kelly. Thank you, Mr. Collins.
Dr. Gleeson?
STATEMENT OF ROBERT GLEESON, VICE PRESIDENT AND MEDICAL
DIRECTOR, NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, ON BEHALF
OF THE AMERICAN COUNCIL OF LIFE INSURERS
Dr. Gleeson. Good morning. Thank you for this opportunity
to appear. My name is Robert Gleeson, and I am a physician and
medical director of Northwestern Mutual Life Insurance Company.
I am testifying today on behalf of both the American
Council of Life Insurers, and my company, Northwestern Mutual.
The American Council of Life Insurance is the primary trade
association for life insurers in the United States,
representing 377 member companies, and Northwestern Mutual
provides financial protection to over 3 million Americans in
the form of life insurance, and we are the largest underwriter
of individually underwritten life insurance in America.
We appreciate this opportunity to be here today, and to
comment on pandemic influenza preparedness in the life
insurance industry.
I want to thank and congratulate this committee for this
kind of hearing where information can be freely exchanged about
this important topic.
Life insurers are experts in managing and assessing risks.
We know that some day, another disaster will occur, be it a
repeat of the 1906 earthquake, or the 1918 pandemic, and we, in
the normal course of events, plan for such catastrophes.
Our ability to understand and manage these risks is
designed to be able to pay our claims. It is an essential
function of our business process. We are subject to rigorous
State solvency laws that require us to have adequate reserves
and surplus to meet unexpectedly large claims, such as a
disaster or pandemic might cause.
At the end of 2005, U.S. life insurers had policy reserves
of $3.3 trillion and a surplus of $256 billion.
As a founding member of the Financial Services Sector
Coordinating Council, FSSCC, the ACLI also works with other
financial services industries, such as the securities and
banking industries, to ensure that our efforts are coordinated
and not at cross purposes.
This is a responsibility that we take seriously, and we
work to continue our efforts with this committee to prevent and
minimize any adverse financial consequences from a pandemic.
We are also acutely aware of the need to maintain excellent
customer service during a pandemic. Most business resumption
planning assumes the loss of physical structures, such as
buildings. However, planning for a pandemic assumes that the
buildings work, but the employees don't. Further, that these
disruptions might occur 2 or 3 times spread out over 18 months.
The Northwestern Mutual pandemic response plan that we
began work on it over 15 months ago, identifies critical
business functions, minimum staffing needs, secure work-from-
home plans, maintenance of flu-free buildings, and lots of
communication.
I hope that this testimony has shed light on the ability of
the life insurance industry to anticipate these low frequency/
high impact events, such as a pandemic, to manage our finances
so that we can meet our obligations, and in the event of a
pandemic, to work with expert government agencies, such as
FSSCC, to care for our employees and provide continuous service
to our customers.
I look forward to answering your questions. Thank you.
[The prepared statement of Dr. Gleeson can be found on page
53 of the appendix.]
Chairwoman Kelly. Thank you, Dr. Gleeson.
Mr. Ferris?
STATEMENT OF GREGORY J. FERRIS, MANAGING DIRECTOR, GLOBAL
BUSINESS CONTINUITY PLANNING, MORGAN STANLEY, ON BEHALF OF THE
BOND MARKET ASSOCIATION AND THE SECURITIES INDUSTRY ASSOCIATION
Mr. Ferris. Chairwoman Kelly, Ranking Member Gutierrez, and
members of the subcommittee, my name is Greg Ferris, and I am a
managing director of Global Business Continuity Planning at
Morgan Stanley. I am also the chairman of the Securities
Industry Association's Business Continuity Planning Committee.
Today, I am testifying on behalf of the Bond Market
Association and Securities Industry Association.
I am grateful for the opportunity to speak to you on steps
taken by our member firms to prepare for a pandemic. The
members of these two organizations welcome and thank you for
your leadership on this important issue.
Securities firms and banks take business continuity
planning or BCP very seriously, and are committed to keeping
the financial markets open during emergencies.
Firms have committed significant time and financial
resources to this effort. Even before the September 11, 2001,
terrorist attacks on New York and Washington, the industry was
developing business continuity strategies in anticipation of
business interrupting events, both natural and manmade.
The September 11th attacks highlighted serious weaknesses
in the areas of firm communications. The industry began
identifying and addressing these problems immediately. We
learned a great deal from that experience, and we worked
closely with Federal regulators and the self-regulatory
organizations to craft effective rules and practices for
business continuity planning. The results of this work have
been positive and visible.
Lessons learned on September 11th helped form the
foundation on which the industry-wide command center structure
has been built. Recovery efforts following the 2003 New York
City blackout and other events, such as the 2005 New York City
transit strike, and the national immigration rallies, were most
effective because this structure was in place.
As valuable as our preparation and experience over the past
5 years has been, it is not all completely transferrable to the
prevention and recovery needs that would arise in the event of
a pandemic.
A pandemic would affect people, the intellectual capital
that makes the financial markets possible, not buildings, and
not critical physical infrastructure.
The Association's global firms were the first to recognize
the unique issues surrounding pandemic preparation during the
SARS epidemic in 2003. Since then, all of our firms have become
keenly aware of the need to anticipate the constraints on
business operations a pandemic would present.
Members are carefully working through such questions as how
do we minimize the effect of a pandemic on staff? How do
critical business functions operate if, as is projected in
advanced pandemic scenarios, employee absenteeism rates hit 60
percent?
As an industry, we have taken several steps to prepare for
a pandemic, which are discussed in my written submission to
this subcommittee.
The one initiative I will discuss in detail here is the
pandemic preparedness exercise that took place this week in New
York City. On Monday, the SIA and BMA gathered 14 of the
largest securities firms to take part in a session that was
observed by all of the financial regulators.
Participants were presented with an escalating scenario in
which a pandemic broke out in Asia and gradually spread through
Europe to the Americas.
In working through different firms' responses to the
changing circumstances, the goal was to gain insight into the
effect of a pandemic on operations, and identify issues that
the industry needs to resolve.
Questions of regulatory treatment during a pandemic and the
capacity of the telecommunications industry, given the
likelihood so many employees would need to work from home,
stood out.
I am pleased to say that as a direct result of this
exercise, SIA and BMA members will be meeting with the SEC soon
to discuss regulatory issues further.
We also plan to meet with the telecommunications industry
officials to assess issues that may arise with that critical
element of industry infrastructure.
Although no one can say with any certainty when and where
the next pandemic will occur or how serious it will be, medical
experts around the globe believe we are closer to that point
than any other time since the last pandemic in 1968.
An infectious disease outbreak will challenge our industry
and the global economy like no other event. It will know no
borders. Many of the solutions that we typically bring to bear
to resolve problems will not be effective.
We must continue to work independently with our industry
and the medical community and governments around the globe to
develop creative solutions to this unique challenge.
Thank you again, Chairwoman Kelly, for your interest in
this important issue and the opportunity to testify today. I am
happy to answer any questions.
[The prepared statement of Mr. Ferris can be found on page
47 of the appendix.]
Chairwoman Kelly. Thank you, Mr. Ferris. I have to just
start by saying that I came into this hearing, when we put this
hearing together, without a great deal of knowledge about what
preparations have been taken.
It is impressive that you have been thinking about it, that
you are working on it, and that it is an active part of what
you are doing for your customers. Thank you for doing that. I
am interested in the fact that the Bond Market Association and
the SIA had a joint exercise. What was the consensus of the
joint exercise participants with regard to telecommunications
capacity in the present day, under the present circumstances?
Mr. Ferris. Chairwoman, I believe that the standout issue
that we need to look at as an industry is the overall capacity
and the ability for many, many people to work remotely
concurrently.
During the 2005 New York City transit strike, which pales
in comparison to a full blown pandemic, we did start to see
problems with both capacity and when people could get
connected, efficiency of the connection, if you will.
We think this is a matter that we need to look at and look
at hard. We need to (a) try to understand what the limits are,
and then (b) try to understand what we can do about those
limits.
Chairwoman Kelly. Is there a way that we can help you?
Mr. Ferris. We are working through the industry
associations on some ideas to test capacity within regions. We
do not know exactly how best to do that yet. We are heading
down that path. If we get to a point where we think that we can
use your support to help get some of that testing done, we will
certainly be willing to accept that help.
Chairwoman Kelly. I am interested also in the response of
everyone on the panel regarding how State regulators have
responded with regard to the avian flu and what you are doing,
if that has impacted what you are doing.
The Federal regulators are responding and you are
responding. Are the State regulators involved here and to what
extent?
Let's start with you, Mr. Ferris.
Mr. Ferris. The industry associations have had little
interaction with the States; the coordination has been
happening at the Federal level, and more at the local level, in
our experience. Frankly, it is decisions made during an event
at the local level that really impact us.
We have been working most closely with groups like the New
York City Office of Emergency Management and other OEM's in
other municipalities. We think that is really where we need to
be very well coordinated.
Chairwoman Kelly. Dr. Gleeson?
Dr. Gleeson. We are a State-regulated industry. The
National Association of Insurance Commissioners is looking at
this issue and currently has a survey out to companies asking
many of the same questions you are asking.
I think at their next quarterly meeting they will be paying
much more attention to this.
Chairwoman Kelly. That is helpful. Mr. Collins?
Mr. Collins. In the State of Georgia, the State Banking
Department works very closely with the National Credit Union
Administration, and these guidelines and things that are taking
place in Federal credit unions are also taking place on a State
level.
The State examiners have gone into State credit unions,
looking at some of the same things as the Federal examiners.
Chairwoman Kelly. Thank you. Mr. Yingling?
Mr. Yingling. My answer would be similar. You referred to
our Toolbox earlier, and actually, this was a joint effort with
our State associations. One of the real lessons from
particularly the hurricanes that were referenced earlier, is
the importance of State and local groups, that there are things
you can do from the Federal level, but it is really important
to have coordination on the ground.
We are well coordinated with our State associations and
directly through them and then through the group at the Federal
level that includes the Conference of State Bank Supervisors.
We have good coordination with the State regulators.
Chairwoman Kelly. That is really very encouraging. My time
is up. I am going to turn now to Mr. Scott.
Mr. Scott. Thank you. I would like to deal with our credit
unions for a bit. Again, I welcome our distinguished guest from
Lockheed.
Mr. Collins, how many members do you have in the Lockheed
Credit Union?
Mr. Collins. Congressman, we have 86,000 members.
Mr. Scott. If you were to have this opportunity to be able
to assure your credit union members that they could have access
to their funds, even if your workforce is stricken, how would
you assure them?
Mr. Collins. Right now, of the 86,000 members, I believe
about 56,000 of them have an ATM card, which is also a debit
card, and that same number also participate in home banking.
What we are doing right now is we are pushing very hard to
get most of our members to accept this card in case we cannot
open our offices.
By the way, it came up earlier, our home banking is
accessible through the telephone also. You do not have to have
a computer at home. You can actually transfer money. You can
make an advance on a line of credit and put it in your checking
account. You can go to an ATM and use it.
Our credit union is a member of all the national ATM
networks. Our members can use an ATM anywhere. We would most
definitely do away with foreign transaction ATM charges. We
give them like five a month free. In a period like that, I
would give them unlimited free access to foreign transactions.
There is one other thing that makes credit unions unique.
We have a national shared branch network. For example, if
Atlanta was the bad city right now, but Los Angeles wasn't, and
a lot of our members migrated to Los Angeles, there are
probably 50 to 100 offices in the Los Angeles area, where one
of my members could walk into any other credit union and do a
transaction.
Mr. Scott. Good. You are about the 25th largest. You are
one of the largest. You are about the 25th/26th largest credit
union in the Nation; is that right?
Mr. Collins. We were.
Mr. Scott. What I wanted to ask you is what about the
smaller ones? Will smaller credit unions that may be relying
on--many of these smaller credit unions, from my relationship
with credit unions, and I work very closely with them, and one
of my favorite people in the whole credit union world is Cindy
Conley from down in Georgia--they represent smaller.
Some of the smaller credit unions have volunteers. The
volunteers perform daily operations.
Will these smaller credit unions that are not as
sophisticated have all of this and who depend upon volunteers,
what plan do we have for them? Is it adequate, or do we need to
do more to make sure the smaller credit unions are as prepared
as say your larger ones?
Mr. Collins. Some of the small credit unions do not have
the sophisticated technology that the bigger credit unions do
for home banking and all those things.
I will give you an example. During Katrina, a lot of small
credit unions in New Orleans who were not part of the shared
network did not have sophisticated data processing systems.
As you remember, we had a lot of New Orleans' people in
Atlanta. What we did was we let it be known that any credit
union member from New Orleans who came in, all they had to do
was show us identification that they were a member of a credit
union in the affected area of Mississippi or New Orleans. We
would actually--we had no idea how much money they had in their
account, but we would allow them to make up to a $500
withdrawal of their savings.
Our credit union did maybe $250,000 to $300,000 and it was
done on faith. To date, I think we have only written off
something like $4,000. We spent $4,000 gladly to help people in
time of need.
Mr. Scott. Good. Let me go to you right quick, Mr. Gleeson,
in terms of insurance. It could be catastrophic in terms of
insurance in this epidemic. It could present a threefold threat
to the insurance industry, potentially resulting in
unprecedented life and health claims and losses.
For example, the Fitch Ratings estimates that life
insurance claims alone from a U.S. bird flu epidemic could be
as high as $18 billion, based upon 200,000 deaths.
Have you run any models on what that threshold would be,
where that point of no return would be? We hate to deal with
deaths, but people here are in the death business and we all
must be realistic about deaths and life insurance.
How large a hit can you take?
Dr. Gleeson. The life insurance industry routinely plans
for, and assumes we will have at some time in the future, a
very bad event, be it a repeat of an earthquake like 1906 or
another pandemic. We manage our money so that we have the
ability to pay those claims. We have a surplus today of $256
billion. I think you said $18 billion. Even if we had a much
larger hit than that, our system would be working perfectly,
because that is exactly what that surplus is designed to do.
We do not need it every year. It is sitting there for these
very bad events. An integral part of our planning and fiduciary
responsibility to our customers is to have that money.
Mr. Scott. At what point would you say your industry would
face a capital crisis?
Dr. Gleeson. I do not know--I am a physician. I am not
prepared to talk about that. We have $3 trillion in reserves.
That is money that policyholders have paid that we are holding
for future claims. We have $256 billion in surplus. It is the
surplus that is designed to pay for the catastrophe.
Mr. Scott. Just one other point, Madam Chairwoman. My time
is getting short. It is always good to learn from experience.
Do you happen to know how the Senate, going back to you, Mr.
Collins, and others if you can answer this--the Senate Hart
Building was shut down during an anthrax scare. That should
have been some good experience.
I am wondering if any of you gleaned that, and especially
related to the Senate Credit Union and how it operated when the
Senate Hart Building was shut down as a result of the anthrax
scare, and did we learn anything from that, Mr. Collins?
Mr. Collins. I think we learned that we should very
diligently making sure that our hot sites work.
Mr. Scott. When you say, ``hot sites,'' you mean?
Mr. Collins. We have our main computer system in Marietta.
We also have another duplicate system sitting out on the East-
West Connector. Should our building be quarantined, we can
within like 4 minutes switch over to our system out on the
East-West Connector, so you just keep on going.
Mr. Scott. Good.
Mr. Yingling. Congressman, we are required basically to
have redundant locations. Of course, one of the things that is
unique about this potential problem is that, unlike if a
hurricane hits here and your redundant system is elsewhere, you
are all right, the flu could be in both places at the same
time. That is one of the things that makes this issue more
difficult.
Mr. Scott. Absolutely.
Mr. Ferris. I would echo that, Congressman. Events like
that have highlighted the need to think about this differently.
The old way of thinking about business continuity was primary
and back-up or active/inactive.
This puts forward the notion of diversification at all
levels, not just data center, but people center, and everything
really should just be active/active. We should not be
concentrating all of anything in any one place to the extent
that we can.
Mr. Scott. Thank you. Madam Chairwoman, this has been very
illuminating for us. I am sure the Nation watching can say we
are in very good hands. We have some good experts here who are
giving us some very valuable information, showing we are being
prepared. Thank you.
Chairwoman Kelly. Thank you. Mr. Price?
Mr. Price. Thank you, Madam Chairwoman. I, too, want to
echo the commendations to each and every one of you for the
clear preparation that you all have made in your industries and
for that, we can be very, very grateful.
I think it also highlights the kind of nuts and bolts'
preparation that each of you are taking, your industries are
taking, as compared to some of the comments from the public
side that may not be as nuts and bolts' oriented.
I want to commend you.
Mr. Yingling, as well as the Chair mentioned, I am
particularly impressed with the Toolbox. I enthusiastically
support what you all are doing there.
I wonder if you might comment about your distribution or
how you are communicating that to the banking industry and
potentially others.
Mr. Yingling. Thank you for the compliment. The Toolbox was
really prepared for a broader purpose. It is designed to
address all types of emergencies, and clearly, our industry has
a long history of being prepared; but after 9/11, after the
hurricanes, after some local tornadoes and flooding, we just
thought it was time to put it all together in terms of what we
have learned recently.
We started that process, and then obviously it made sense
to have a special focus within that on the potential for avian
flu. We did that in one of the pieces.
Our Toolbox was available on June 1st. Like all human
endeavors, it helped to have a deadline, and the start of
hurricane season was a good deadline, which forced us to get it
out in a timely fashion.
It was available to all of our members online as of June
1st, and then hard copies were sent out and are available.
Again, it is not just us distributing it. I want to again
say it is done jointly with all our State associations, so it
is not only us making it available and talking to our members.
There will be follow up, but you have the State associations
locally able to take that directly to bankers.
Mr. Price. Thank you. Congratulations again.
I want to move to a very mundane question about cash. It
has been touched on. If we have a pandemic of significant
consequences, it is possible we will not be able to move cash
or get cash to the place where people can access it, for
example, ATM's, notwithstanding the banks or credit unions
might not be open.
Are there plans or do you have contingencies if cash cannot
be moved to a community, for example?
Mr. Yingling. I think this is a very important issue and it
also relates to questions, and I think very important
questions, that came out during the first panel about the un-
banked and their access to financial services.
There are two conflicting streams going here, because on
the one hand, during the first panel, there were legitimate
concerns expressed about liquidity. Normally, during a crisis
or disaster, one of the first things that happens in the
financial services area is a liquidity crunch or a cash crunch
right in that locality.
Frankly, we are used to dealing with that type of thing.
The FED and the banks and others have a history, and we know
how to do that.
This one is more complicated, as you point out, because
there will be questions of who is going to handle the cash.
I think those can be addressed frankly. Banks and our
regulators need to have gloves and masks and people that are
willing to do that. The FED does have systems it has used in
the past for dealing with contaminated cash, cash where flood
waters came through and maybe the flood waters were
contaminated. That takes work. As you all have said, nuts and
bolts.
I think there is another question, and that is cutting the
other way; are people going to want to have cash? Are you going
to want to handle cash that has been handled by however many
other hundreds of people at that time? I think that is a
difficult question we need to address.
A lot of the answer is plastic, as my colleagues said here.
If we were 5 or 10 years from now, because we are trending very
rapidly towards alternative uses to cash of plastic and
electronics, and I am not sure we are quite there; I think
particularly for the un-banked, we have some work to do to make
sure that they have access to financial services.
Mr. Price. My time is getting short, but I want to touch on
one other topic, and I would ask any one of you to respond, if
you would.
I am interested in the regulatory flexibility. Mr. Ferris,
you touched on it in your testimony. I am interested in some
specificity if you or your industry has specific
recommendations about what kind of regulatory flexibility would
be necessary in the happenstance of a pandemic.
Mr. Collins. I would say indeed, from the credit union
point of view, some credit unions, you are considered well
capitalized under prompt corrective action if you have 7
percent or more capital.
There are many credit unions that operate at like 7.5
percent. They are just half a percent over. My credit union
happens to be very conservative. We have 13 percent capital.
I can envision if this goes on for 6 months, we will
probably perhaps even stop accruing interest on some loans,
because people have no way of paying them. We would like, if we
could afford to, to continue paying our employees even if they
do not come to work.
We have $35 million that we could lose and still be well
capitalized. There could be some credit unions that could slip
under the 7 percent. The regulatory relief that I think the
National Credit Union Administration would have to be looking
at is not jumping on a credit union with both feet just because
they slipped under the magical 7 percent, which by the way,
they did in many cases to small credit unions down in New
Orleans.
Mr. Ferris. Congressman, two of the topics that come up in
the capital markets frequently are matters of supervision, can
that be done remotely? Deadlines for a certain activity, would
those be extended? Would the day be in essence elongated, if
you will?
The way we have structured this with the regulators is we
invited them, as I have indicated to you, to observe our table
top this past Monday. They listened to all of the different
firms' responses and reactions to what they would be doing as
this evolved from a mild event to a severe event, and they
agreed to re-group with us in a few weeks' time, and they will
give us their thoughts on what our plans are, and then we are
going to get into the nuts and bolts of some of the things that
we need to talk about with respect to regulatory easing in
certain areas.
Mr. Price. Is that time line comfortable for you?
Mr. Ferris. Yes. We have a very good dialogue with the
regulators post-9/11.
Mr. Yingling. Congressman, one of the recommendations that
came out of our group that developed the Toolbox was that the
regulators--having been around the circuit a couple of times,
particularly with the hurricane, but we have tornadoes and
other things--know most of the relief we are going to need,
although not all of it, as has been pointed out.
Sometimes it is like we are having to re-invent the wheel,
and it takes a little time. We think the one thing that could
be done is all the ideas to regulate flexibility should be on
the shelf, pulled out right away, looked over carefully, and
then released right away so we do not have to worry about it
for a week or two.
We basically know the kind of relief we need, at least in
the short run.
Mr. Price. Thank you. Madam Chairwoman, thank you. I
appreciate again your holding this hearing and raising the
visibility of this issue.
Chairwoman Kelly. Thank you. Mr. Cleaver?
Mr. Cleaver. Thank you, Madam Chairwoman.
To the panelists, you probably heard Secretary Parsons say
earlier that he believed that things were in place whereby the
financial sector could react if and when there is some kind of
pandemic.
Do you agree that the system is in place as best as it can
be to protect the financial sector and those connected to it?
Mr. Yingling. I think I would say that the structure is in
place, the organizational structure is in place, and the
Treasury and others have done a very good job with our
industry. All of us in our industry have done a good job of
setting up the structure.
This type of emergency is different. That is talked about
in a lot of the testimony, for a lot of reasons.
I think we still have work to do building off that
structure, and when we get the notice that you were asking
about in the first panel, we have to be prepared to really go
to work doubly hard, and we ought to be preparing for that now.
I feel good about the structure. However, because of the
potential nature of the pandemic, I do not think we can rest on
our laurels.
I think the points that several people have made about how
we have to look at it from the people's point of view, not just
our point of view, is another way. We need to do that exercise.
Okay, we are looking at it internally. Now, let's look at it
from the point of view of the people out there in our
communities.
Mr. Collins. I echo Mr. Yingling's thoughts about the
structure. I was anxiously awaiting an answer that I did not
really get to your question.
Mr. Cleaver. I was, too.
Mr. Collins. Who will ultimately flip the switch? It would
be nice to know in Atlanta, Georgia, when it is declared an all
out pandemic. Should we be going to work? Should we be letting
our employees even come into work? I want to know, will
somebody say, ``that's it. The schools are closed.''
Mr. Cleaver. Yes. I wanted to know where George was going
to be located, George who flips the switch. If it is not
George, then Georgette. I want to know if that is in place, and
I am not sure I got that answer.
I want to know who is going to drive the buses from the
airport down to the Dome? More importantly, who is going to
tell the bus driver that it is time to drive?
My concern is, and it is the paranoia resulting from what
we saw from Katrina, and I do not want to beat up on FEMA,
because I would have to stand in line and the line is long, but
I wonder if FEMA had been in a hearing prior to Katrina,
whether they would have said--we will never know. That is why I
am pushing this question.
Whether they would have said, yes, everything is fine if
there is a disaster, we know exactly the first step to take.
I am questioning whether or not it is in place here. It is
really worrying me in spite of the Deputy Secretary of the
Treasury and those of you in the industry, that could be
impacted in a way that would devastate every day people.
Mr. Yingling. I think if I could, my understanding would
be--I agree with your concern. You always want to have somebody
in charge. My understanding is that the Financial and Banking
Information Infrastructure Committee headed by Treasury would
have that role.
Assistant Secretary Henry, and I presume the Secretary,
would say okay, now is the time to implement these parts, and
that would go through them to all the regulators and then
through our coordinating council it would go to all the trade
associations and on down.
That is my understanding of how the system would work, and
how we would expect and hope it would work.
Mr. Ferris. If I could add to that, Congressman. At the
command center level, the industry command center level, we
have modified our communication protocol to pull in some
pandemic red flags, if you will.
We, like many other firms, independently and other
associations, are looking to the World Health Organization's
six phrase pandemic model, and we are presently at a three. If
that goes from a three to a four, that is going to cause a
whole bunch of things to happen at the command center level. If
it goes from a four to a five, even more things will happen,
etc.
In many respects, this command center is going to be
spinning its emotion locally, perhaps even before somebody at
the Federal level flips that switch. We are looking to the
World Health Organization. When that moves, we move; if that
helps.
Chairwoman Kelly. If the gentleman would yield.
Mr. Cleaver. Yes.
Chairwoman Kelly. As a committee, we will send an official
letter to Under Secretary Henry and inquire, if you would like.
Mr. Cleaver. Yes.
Chairwoman Kelly. To have some kind of a definitive answer.
It is clear that it is not quite clear to members who are in
charge of all of this where they are going to get that command.
It is a good question. We will send an official letter.
Mr. Cleaver. Ask him, where is George? Thank you.
Chairwoman Kelly. Thank you. We appreciate the time that
you have given us and the answers to the questions. Again, I
want to say that it is very impressive that you have begun the
work. There is still more to be done. You have handled it very
effectively. I thank you very much.
Without objection, the members may have additional
questions for this panel. They may submit them in writing and
without objection, the hearing record is going to remain open
for 30 days for members to submit written questions to these
witnesses, and to place their responses in the record.
We again extend our great thanks to all of you for being
here with us today. This hearing is adjourned.
[Whereupon, at 12:32 p.m., the subcommittee was adjourned.]
A P P E N D I X
June 29, 2006
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