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District Banks Dodge Fall Storms: What Katrina and Rita Taught Us

Saturday, January 1, 2005

Although Katrina, Rita and Wilma spared Eighth District banks the brunt of their physical damage, the storms undoubtedly caused many bankers across the country to re-examine their contingency plans. Reserve banks did the same. In fact, many of those not directly affected by the damage played key roles in keeping the banking system up and running. Following are some highlights of the Fed's regional approach to supporting customers throughout the emergency, as well as a brief reflection of some lessons learned.

Let the Juggling Begin

When news of the first hurricane hit, the Sixth Federal Reserve District, headed by the Federal Reserve Bank of Atlanta, put its contingency plan to the test. With floodwaters rising and virtually the entire city of New Orleans evacuated, the Atlanta Fed's branch there was forced to close, and numerous services—including cash and check processing—had to be rerouted.

Fortunately, several Fed branches around the Fed System had already been designated as "buddy sites" to help in the event of a disaster in that region. Several Fed sites across the Sixth District and beyond stepped in immediately to provide cash services to Gulf region customers. The Atlanta office took in rerouted check processing from its closed branch.

The Memphis Branch, located in the Eighth District, was one of the designated buddy sites that provided cash services. As an office that serves as the Federal Reserve System's consolidated food coupon processing site, Memphis had almost every financial institution set up in its accounting operation system. This made it relatively easy and straightforward for financial institutions impacted by the hurricane to obtain cash services from a site that they would otherwise not have had access to.

Memphis Takes the Lead in Destroying Contaminated Currency

The Memphis Branch not only assisted by providing cash services, but also took the lead in destroying currency contaminated during the disaster. Because of exposure to hazardous chemicals and sewage in a flood at a New Orleans armored car facility, the currency had to be burned, rather than simply shredded. Memphis officials coordinated this effort, and with the aid of an off-site technique called hot-burn incineration—at a temperature of 1,600 degrees—the currency was successfully destroyed.

Fed's Response Credited to Creative Partnerships and Cooperation

Communication is a critical part of any contingency plan, but what happens when traditional communication vehicles are completely unusable? In this case, the Fed capitalized on strategic channels that already existed.

" We worked directly with our armored carrier services and considered them as primary conduits for communication," Matthew Torbett, assistant vice president at the Memphis Branch, states. "Since most armored carriers had facilities in the affected areas, they had first-hand relationships with many of the banks impacted and were considered a primary channel for information between bankers and the Fed."

In a cooperative effort among its employees, Memphis extended its hours of operation to meet customer needs, filling orders that were called in past deadlines, even receiving and processing orders on Saturday, Sunday and Labor Day. The Memphis cash operation processed orders for 20 consecutive days following Hurricane Katrina. Other buddy sites had similar responses.

Lessons Learned

Using tools from its contingency plan and a commitment to customer service, the New Orleans Branch resumed some cash operations by late September, just four weeks after the first hurricane hit and months before it was expected to open.

Now, after the critical phase of the emergency ended, is when the real evaluations of the Fed's contingency efforts begin, of course. The Fed reaped the value of partnerships across many services and will, as an organization, continue to discuss best practices in order to respond effectively to any future emergencies.

Torbett considers his experience on this issue to be valuable to the Fed and worthy of sharing with bankers, as well. "We must engage all available parties in emergency planning and seek additional partnerships for times when normal communication channels may not be available," he says.

The Federal Reserve Board established and continues to update a web page featuring operational and regulatory guidance on issues raised by the recent disasters. (See box.) These documents and other helpful links might help your institution learn more about the Fed's response and how to best prepare for future situations.