This post was supposed to go up days ago, on the memorial of the September 11th attacks.
In responding to this crisis, don’t think of yourself just as a representative of our Bank but as central bankers of our nation.-Jerry Jordan, President of Federal Reserve Bank of Cleveland.
The 9/11 attacks were directed, not just at America randomly, but specifically at the country’s financial centers in New York, and military center in Washington, DC (Pentagon). It was, in all respects, a highly thought out attack aimed at crippling one of the backbones of the world’s financial system, and it nearly succeeded. When the attacks happened, they knocked out completely the offices of Cantor Fitzgerald, one of the top interdealer brokers (they manage dealer-to-dealer transactions making sure that the dealers themselves have all their clearing houses ready for the orders that their customers (banks, securities traders etc) will route to them for that day) on the street, responsible for at least 25% of the daily transactions volume in the securities industry. They also knocked out or significantly damaged the offices of the NY Federal Reserve Bank (which maintains and provides funds for the biggest NY banks and much of the national federal reserve system), the communications and trading infrastructure for Bank of New York Mellon and Chase, both of which managed the trading accounts for more than 70% of Wall Street banks including the major institutions like JP Morgan, Goldman Sachs and Bear Stearns, many of whom also managed commercial paper (short term loans) for major corporations across the country, some of who needed to access funds to make payroll, deposits and clear cheques. Finally, the wires and transmission lines for major telecommunications companies like Verizon, AT&T, Bloomberg, the New York Stock Exchange, etc which powered trades, communications, landlines, cellphones and more in the entire area was completely disrupted.
Yet, other than the facts that many banks closed early that day, and some had to put certain operations on hold, the financial system and institutions kept on running, for the most part. ATMs still gave out money, banks still accessed funds, checks still cleared, payments still went through, trades were still resolved and within five days, the market was functioning as if 9/11 never happened. How was that possible? Remember this was in 2001, when most checks were still cleared by paper verification, and wifi was not widely available. The responsibility for keeping things going, eventually fell to individuals, and their little acts of heroism.
When the attack happened, the chairman of the NY Fed, and Alan Greenspan, chair of the national Fed, were flying from Zurich and had no idea what was going on, although their flight was reversed and they were able to talk to the people on the ground to learn what was going on. However, the top Fed governor available was able to swing into action, communicating to all the banks that the Federal Open Markets were running and available to provide liquidity directly to anyone who needed it (versus the usual channels of going through bigger banks to clearing houses to market makers to the Fed) . Most of the banks moved operations to their back up centers (The NYFed operated from New Jersey), and since they didn’t have dedicated communications lines in those locations, called in their trades which were recorded manually by the Fed’s Desk operators in normal pen and paper. Some others spent hours restoring IT communication lines and retracing trades that were sent to C. Fitzegerald (whose offices were completely destroyed) in order to clear them and settle all accounts with the right amounts. People worked three days straight, some of them right in the rubble of the collapsed buildings until the fire service forced them to move for fear of the only remaining WTC building collapsing on top of them.
The stock market opened after a few days, and by the 17th, five days later, a semblance of normalcy was restored and commerce continued uninterrupted.
The full gist of all the different ways the system was help up can be found here. It’s a massively long, but interesting read.
One of the key takeaways for me, is that a lot of the things we take for granted like checks clearing, money transfers going through, banks and ATMs being open and your cash being available to you, is supported by a huge network of systems which regardless of how automated we make them, will eventually depend on individuals like you and me to make them work. In other words, if by some kind of disaster, all our communication technology were knocked out, there would still be people who will revert to the days before we had them, and call trades out to each other, and write them down, and collect cash, until we rebuilt or reinvented what we have today. Human beings will always be more important than any technology.
Another take away is the importance of preparation. A lot of banks and financial institutions had prepared for the Y2K computer bug by building back up IT systems and processes to bypass any technology wipe out. And they all, as a matter of course, had trainings on emergency operations, evacuation, etc. All of this preparation came in handy when the 9/11 attacks happened.
It’s a great insight into some things that make America the force that it is, and I’m interested in knowing how our systems in Nigeria are operated and designed for potential crisis like these. Yes, we might not have the kind of enemies that America has. But we do have Boko Haram in our backyards, and have had several years of militancy. Plus, if we truly want to rise as a country and be taken seriously in global commerce, we probably should copy the Americans and not leave things to chance.