Earthquake preparedness looms high on list of priorities for liable bank executives.

Earthquake preparedness looms high on list of priorities for liable bank executives

One of the few things for which directors and officers of a bank can be personally held liable is faulty contingency disaster planning, since failure to survive a disaster can kill a financial institution.

"You can make a bad loan and you won't get sued," said Sal Serrantino of the California Research Corp. in Santa Monica, a banking consulting company. But improperly handling emergencies and disasters can cause third party legal action, reduce customer confidence, jeopardize employee and customer safety and in turn cause the bank to lose its competitive edge, he said.

Hence, "convictions can result in personal fines of up to $10,000 and prison terms up to five years (for bank officers and directors). Corporate after-tax penalties start at $1 million. Additionally, third-party litigation awards can be enormous," Serrantino noted.

When disasters disrupt banking functions, "we become a cash-based society," said James Young of California State Banking Department. The question then, becomes how customers can obtain cash from their accounts.

Out of Bank of America's 215 branches in the San Francisco area, 40 were closed one day after the October 1989 earthquake. But there were close to 700 ATMs operating and allowing people to get cash, said Paul Mayo, vice president of contingency operations planning at Bank of America.

Keeping accurate records is also a major priority. Very few records were lost during the San Francisco earthquake because of the timing. The earthquake occured at 5:05 PM, at the end of the business day when checks are taken to a data center and backed up electronically, said Mayo. If the quake had occured earlier in the day, record keeping could have been disrupted, he noted.

One way to reduce such problems is to record documents on microfilm hourly, Young advised. Another way is for employees to take the work in progress out of the branch, he added.

Banks which process checks at service centers are required to have an alternative site with compatible computer systems to handle emergencies.

To deal with phone line overload at the branches "cellular telephones that do not use traditional hard wire" can be used, said Elaine Kissil of First Interstate Bank of California.

According to Young, an electronic data processing examiner, "banks are regulated under federal statutes of July 14, 1989 to have a disaster plan in place" to insure that fires, floods, earthquakes, riots and bomb threats do not disrupt business operations. But testing the plans is just as important.

To insure smooth operations at the time of a disaster Bank of America conducts monthly tests. First Interstate, which experienced a major fire in May of 1988, has ongoing life and safety programs and an emergency response team that practices scripted roles, said Cheryl Friedling, a company spokeswoman.

One reason First Interstate was able to resume operations the morning after its fire was that $1.5 million was used over an 18-month period for training and testing an emergency response plan, a corporate disaster plan and a business resumption plan.

Using existing plans, First Interstate was servicing customers the next day out of an emergency operations center six blocks from where the fire occured. Using pre-existing call lists, key personnel were informed and asked to relocate departments in order of priority. According to a written plan, a hot line also rerouted customers and employees.

PHOTO : Earthquake: Businesses can survive, banks risk failure