[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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                 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

                              ----------                              
                                                                   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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