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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

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

MARK R. KENNEDY, Minnesota 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

CAROLYN B. MALONEY, New York 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

DAVID SCOTT, Georgia 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

BARNEY FRANK, Massachusetts 

(V)

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

(1)

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. 

2

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. 

3

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? 

4

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, 

5

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? 

6

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. 

7

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 

8

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 

9

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. 

10

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 welldeveloped 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. 

11

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-tohuman transmission of the virus, efficient and sustainable humanto-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— 

12

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 possibiliVerDate 0ct 09 2002 13:31 Jan 29, 2007 Jkt 031533 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 F:\DOCS\31533.TXT HFIN PsN: TERRIE
13

ties—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 

14

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? 

15

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. 

16

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-tohuman 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. 

17

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. 

18

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 

19

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. 

20

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. 

21

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. 

22

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 

23

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. 

24

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. 

25

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. 

26

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? 

27

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 EastWest 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 backup 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 

28

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 

29

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 unbanked, 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? 

30

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. 

31

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. 

32

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.] 

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A P P E N D I X

June 29, 2006

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