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Implications Of An Attack On a Major U.S. Financial Institution

August 2, 2004 at 12:00 AM EDT
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RAY SUAREZ: For more, I’m joined by two people who are closely watching companies, markets, and other key economic institutions. Blake Coppotelli is a managing director at Kroll, the largest independent risk consulting company. And Jim Browning covers financial markets for the Wall Street Journal. Gentlemen, welcome.

Jim Browning, why pick financial institutions as targets?

JIM BROWNING: Well, I think for some time they’ve been looking at financial institutions as a representation of the heart of the country. I mean, if you can manage to attack the economy and also to frighten investors at the same time, you’re going to have a fairly significant impact. It’s probably not a coincidence that the attack on the World Trade Center occurred right in the heart of New York’s financial community.

RAY SUAREZ: Blake Coppotelli, does that sound right to you?

BLAKE COPPOTELLI: Pardon me?

RAY SUAREZ: That motivation for picking this set of targets?

BLAKE COPPOTELLI: I would agree with that. I think that hitting the financial targets represents probably the best impact at this point just prior to the republican convention here in New York.

RAY SUAREZ: And if there had been an attack, how seriously could it have disrupted the world financial system? A physical attack, car and truck bombs had been named as one of the methods. Is that kind of attack in a position to really upset operation of markets?

BLAKE COPPOTELLI: Well, it really depends on the target. Post 9/11, the substantial number, in fact, probably all of the major financial institutions reassessed their security program and put into place measures that would essentially remediate any of the threats that we’re seeing now or at least attempt to remediate any of the threats. I think that based on the business continuity planning, the contingency planning, the crisis management planning, the emergency response planning that financial institutions have put into place since 9/11, I think that they are much better prepared to handle an event and continue business so that the impact is not as great as it would have been if an event occurred prior to 9/11.

RAY SUAREZ: And, Jim Browning, maybe you can tell us what happened at the time of the Sept. 11 attacks. Remind us of just how trading was affected when in fact the exchanges were not the direct target of the attack.

JIM BROWNING: That’s right. Although in the World Trade Center obviously a number of financial institutions were located and were affected by this, but as a result of the attack, of course, there was terrible destruction. I mean it was right across the street from my office. As it happened I was walking down the street near city hall when the building fell down. And a lot of people in the financial community witnessed or were very nearby when all this occurred. And as a result of the fact that a large part of downtown New York had to be closed off until the damage could be controlled.

The New York Stock Exchange, for example, was closed for four days and stock trading in general was closed. The bond market I think opened a little bit sooner. The commodity market opened a little bit sooner. And it was the start of the following week before trading could begin again. It was, as I recall, the longest closure since World War I or maybe since the Depression but in any case in decades. And aside from the jolt that the attack itself gave to the financial markets, the fact that they had to close down was a terrible blow.

RAY SUAREZ: What were the kinds of steps, Blake Coppotelli, that were taken so that even if there was a direct physical attack there would be continuity?

BLAKE COPPOTELLI: The first thing that the companies did post 9/11, financial institutions primarily, was they assessed the physical security of their offices and locations. They concentrated on perimeter control, access control, to make sure that they had control over the perimeter of their buildings and offices and individuals gaining access to their buildings. The second thing they did was they put into place a reassessment of their business continuity crisis management and emergency response planning. And they put into place a security program that integrates each of the major aspects of a security profile so that they have complete coverage from the curb, from the perimeter to the internal communications of the company. So that if an event does occur, they’ve at least tried to deter that event through their access control and perimeter control.

If that event, in fact, occurs, they’ve tried to manage the effect of that event through their crisis management planning, their emergency response planning which essentially enables them to communicate with federal, state and local authorities, first responders, so that they’re able to contain their life safety damage as best as possible, contain the damage to the physical structure and building as best as possible. They put into plan almost immediately in the event of a terrorist activity their business continuity planning so that off site operations, command posts, critical business functions at off-site locations that are specifically built in for redundancy purposes can be brought up and made operational instantaneously so that they can continue their critical business functions and limit the amount of affect and damage based on the event.

RAY SUAREZ: Jim Browning, take into account what Blake Coppotelli just said. Of course, in an attack there’s loss of life, there’s bloodshed. There’s damage to physical capital but is there also in a case like this of a direct attack against the major clearing bank or a major exchange a psychological impact that’s less easy to define and less easy to defend against?

JIM BROWNING: Yeah, one of the important things about the American financial system is that it’s not really centrally located. I mean we think of it being in New York City. But, in fact, investors are spread out all across the country and in fact internationally. Boston, Chicago, the West Coast — and then throughout the world. So the impact… the actual physical impact of an attack might not be that great. The financial system would be able to function but the psychological blow of another attack occurring would be immense. Whether it would be as great as Sept. 11, nobody really knows.

I mean, people are to some extent prepared in their minds for the idea that another attack seems to be inevitable and obviously though people are hoping that it won’t occur. And so one of the most serious problems you would face… I mean if it occurred near the New York stock Exchange, that would present a physical problem because the trading on the floor of the New York Stock exchange occurs among people who are present. It would be very hard for them to conduct that trading without those people being there. But aside from that, the psychological blow and the uncertainty and the fear could turn out to be the most severe problem for the markets.

RAY SUAREZ: Let’s talk a little bit about the IMF, and the World Bank. They aren’t strictly speaking financial institutions where money moves around and securities exchange hands, are they?

JIM BROWNING: Well, they’re not really financial institutions in the sense that a private sector institution would be. I mean, they’re involved in international development, in international monetary policy. They’re really more public policy institutions and symbols so in the case of the… it’s better to think of the World Bank and the IMF as you would a government institution in Washington. Damage to them would be a symbolic, from the point of view of the financial markets, would be a symbolic blow. It would be an attack on our nation’s capital and on the world financial system rather than a direct attack on money that’s moving around.

RAY SUAREZ: Jim Browning and Blake Coppotelli, gentlemen, thank you both.

BLAKE COPPOTELLI: Thank you.

JIM BROWNING: Thank you.