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PROTECTING OUR

FINANCIAL INFRASTRUCTURE:

PREPARATION AND VIGILANCE

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

SEPTEMBER 8, 2004

Printed for the use of the Committee on Financial Services

Serial No. 108–108

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

PETER T. KING, New York 

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 

DOUG OSE, California 

JUDY BIGGERT, Illinois 

MARK GREEN, Wisconsin 

PATRICK J. TOOMEY, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN B. SHADEGG, Arizona 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

MELISSA A. HART, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

TIM MURPHY, Pennsylvania 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

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 

JAY INSLEE, Washington 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

KEN LUCAS, Kentucky 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

MIKE ROSS, Arkansas 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

RAHM EMANUEL, Illinois 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

CHRIS BELL, Texas 

BERNARD SANDERS, Vermont

ROBERT U. FOSTER, III, Staff Director 

(III)

C O N T E N T S 

Page 

Hearing held on: 

September 8, 2004 ............................................................................................ 1

Appendix: 

September 8, 2004 ............................................................................................ 47

WITNESSES 

WEDNESDAY, SEPTEMBER 8, 2004

Abernathy, Hon. Wayne, Assistant Secretary for Financial Institutions, Department of Treasury ........................................................................................... 10

Britz, Robert G., President and Co-Chief Operating Officer, New York Stock 

Exchange, Inc. ...................................................................................................... 29

Dolloff, Wilton, Executive Vice President, Operations and Technology, Huntington Bancshares Incorporated, on behalf of Bits and The Financial Services Roundtable .................................................................................................... 34

Gaer, Samuel, Chief Information Officer, NY Mercantile Exchange .................. 36

Liscouski, Robert, Assistant Secretary, Information Analysis and Infrastructure Protection, Department of Homeland Security .......................................... 11

Mohr, John, Executive Vice President, The Clearing House Association L.L.C 32

Olson, Hon. Mark W., Member, Board of Governors, Federal Reserve System . 8

Tishuk, Brian S., Executive Director, ChicagoFIRST ........................................... 38

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 48

Bachus, Hon. Spencer ...................................................................................... 50

Emanuel, Hon. Rahm ....................................................................................... 52

Gillmor, Hon. Paul E. ....................................................................................... 53

Hinojosa, Hon. Rube ́n ....................................................................................... 55

Kelly, Hon. Sue W. ........................................................................................... 57

Abernathy, Hon. Wayne ................................................................................... 59

Britz, Robert G. ................................................................................................ 65

Dolloff, Wilton ................................................................................................... 86

Gaer, Samuel .................................................................................................... 101

Liscouski, Robert .............................................................................................. 109

Mohr, John ........................................................................................................ 116

Olson, Hon. Mark W. ........................................................................................ 125

Tishuk, Brian S. ............................................................................................... 136

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Britz, Robert G.: 

Written response to questions from Hon. Rube ́n Hinojosa ........................... 151

Olson, Hon. Mark W.: 

Written response to questions from Hon. Spencer Bachus ........................... 152

Written response to questions from Hon. Rube ́n Hinojosa ........................... 155

Tishuk, Brian S.: 

Written response to questions from Hon. Rube ́n Hinojosa ........................... 158

(1)

PROTECTING OUR 

FINANCIAL INFRASTRUCTURE: 

PREPARATION AND VIGILANCE 

Wednesday, September 8, 2004

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to call, at 10:07 a.m., in Room 

2128, Rayburn House Office Building, Hon. Michael Oxley [chairman of the committee] presiding. 

Present: Representatives Leach, Bachus, Kelly, Biggert, Miller of 

California, Capito, Tiberi, Brown-Waite, Frank, Maloney, Gutierrez, Ackerman, Sherman, Lee, Inslee, Hinojosa, Lucas of Kentucky, 

Matheson, Miller of North Carolina, Emanuel, Scott, and Bell. 

Mrs. KELLY. [Presiding.] This hearing of the committee will come 

to order. 

This morning the committee convenes to continue its ongoing 

oversight of preparedness incident recovery and critical infrastructure protection issues. I thank Chairman Oxley for holding this 

hearing. 

At the heart of critical infrastructure is the safety and soundness 

of the financial services sector which drives every aspect of our 

economy. Earlier this Congress, the Oversight and Investigations 

Subcommittee held a hearing to examine the state of readiness of 

the financial services sector and the critical infrastructure that allows it to serve our country. In that hearing, the subcommittee 

learned about many promising steps that have been taken by our 

financial caretakers, as well as the constant assessment and improvements that still must be performed. 

Over the last several years, our country has experienced many 

extraordinary events that have threatened the safety of the American people and of our financial system, from the horrific attacks 

of September 11, 2001 to the blackouts and hurricanes, but fortunately our markets have experienced remarkably quick recoveries, 

illustrating the tremendous resiliency of the financial system and 

the U.S. economy. 

As a result of these events, it is apparent that the technology age 

we live in, which allows us to provide services and access information in a heartbeat, is both a boon and one of our greatest 

vulnerabilities. It is imperative that we continually revise our efforts to protect data systems and the infrastructure that allow 

them to operate, which are ever more entwined and dependent on 

one another. 

2

Today, this review could not be any more timely. Last month, 

Department of Homeland Security Secretary Tom Ridge issued a 

warning of possible al Qaeda terrorist attacks to our financial institutions, including the Prudential Financial, the Citigroup Center 

Building, and the New York Stock Exchange, as well as the International Monetary Fund and World Bank buildings. The committee 

is very interested in the steps that have been taken to protect our 

financial infrastructure since the threat level was elevated to code 

orange for the financial services sector in New York City, Northern 

New Jersey and here in Washington, D.C. 

As terrorists continue to target our economy and financial institutions, we must ensure our financial infrastructure is strong 

enough to withstand diverse types of attacks. We must ensure that 

all our systems, whether financial, energy, transportation or telecommunications, are able to operate under extraordinary circumstances. 

The committee is pleased to have with us this morning Federal 

Reserve Board Chairman Mark Olson, who has been a leader in 

these efforts in his role at the Fed. We also welcome the Assistant 

Secretary for Financial Institutions at the Treasury Department, 

Wayne Abernathy, who also serves as the department’s sector coordinator for critical infrastructure protection. And joining us is the 

Assistant Secretary of Homeland Security for Infrastructure Robert 

Liscouski, who is responsible for the department’s efforts to identify our critical infrastructures and propose protective measures to 

keep them safe from terrorist attacks. 

Keeping our financial systems functioning and safe requires a 

high degree of coordination between many different and important 

parties, both public and private. The committee is also pleased to 

have with us witnesses on our second panel who are leaders in protecting critical financial services assets from major disasters, including several individuals from the great State of New York. 

These witnesses, along with others in the private sector and the 

government who could not be represented here today, are working 

in the field every day to protect our financial systems. 

The committee thanks all of our witnesses today for your appearance, and we look forward to your testimony. Together, we hope 

that we can ensure that our financial systems are functioning 

smoothly under all circumstances and the American people should 

have full confidence in the financial services sector. 

[The prepared statement of Hon. Sue W. Kelly can be found on 

page 57 in the appendix.] 

Mrs. KELLY. I would like to now recognize my colleague, Ms. 

Maloney. 

Mrs. MALONEY. Thank you very much. I join you in thanking 

Chairman Oxley and Ranking Member Frank and my colleague 

from the great State of New York for chairing this meeting. I welcome all of our witnesses, who include a number of organizations 

that I am privileged to represent. Some of them are my constituents. 

In New York City, the heart of the nation’s financial infrastructure, we can vividly remember what it was like to have that infrastructure damaged by terrorist attack just 3 years ago. We know 

very well the extraordinary lengths that many of New York’s fine 

3

institutions, some of which are represented here today, went to ensure that the financial markets functioned as soon as possible to 

protect not only the U.S. economy, but that of the world from irreversible harm. I do not think any of us will forget the anticipation, 

the anxiety before the big boards opened up again and were there 

to serve the people. These terrible events demonstrated clearly that 

the protection of our financial infrastructure is essential to the nation’s financial system. Unfortunately, they also demonstrated that 

we were ill-prepared for an attack on it. 

So my fundamental question today, to each of the private sector 

witnesses represented today, is what would happen differently 

today. My even more basic question to Treasury, the Fed and 

Homeland Security is who would be in charge of the government 

response. I would like to hear that there is an established, tested 

and proven system of coordination and a clear line of authority and 

accountability so that decisions can be made in a prompt and informed manner, but I am not sure that that is the case. 

We have several new committees, the Financial and Banking Information Infrastructure Committee, the Financial Service Sector 

Coordinating Council, and the Financial Services Information-Sharing and Analysis Center. But how exactly do they work in practice? 

Who makes the final call? Who staffs these committees? And who 

is responsible for carrying out their decisions? 

I would like to hear how our response system held up last month 

when the terror level was raised for financial institutions in New 

York City and elsewhere. I would also like to hear how that system 

is working now to ensure a speedy and sufficient response to the 

danger posed by Hurricane Frances to the financial institutions in 

its path. We, this committee, know the government is capable of a 

sustained and coherent response to threats to the financial infrastructure. 

As those of us who have served on this committee know, we were 

prepared for the Y2K threat. There were many hearings, the government response, and many oversight hearings. But as the 9/11 

Commission reports, that effort relaxed after the millennium 

passed and the government was not well coordinated nor was key 

information properly shared among various agencies or with the 

private sector in the months leading up to September 11. 

One year after September 11, this committee asked the General 

Accounting Office to report on what additional steps had been 

taken to protect the financial infrastructure since that catastrophe. 

The GAO report, which was the last government report issued on 

this subject in February of 2003, gave regulators and firms a mixed 

assessment, criticizing them for having focused on clearing and settlement activity, to the exclusion of trading and retail firms. 

Our Oversight Committee reviewed the ground again in October 

of 2003 in the context of the August 2003 blackout, and we had the 

pleasure of hearing from many of our panelists today. As a New 

Yorker, I am proud of the way in which the public and private financial sectors of my city worked together to respond to these two 

tremendous disasters and are continuing to work with the federal 

government. 

Such efforts demonstrate that our cities are prepared to protect 

their financial industry and that the calls some have made for fiVerDate 0ct 09 2002 11:29 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\DOCS\97449.TXT FIN1 PsN: MICAH
4

nancial institutions to create backup locations hundreds of miles 

away from an urban area are totally misguided. They can have 

them in a different area of the urban area. Congress and the federal government should support the hubs of our nation’s finance by 

providing additional homeland security funding to them and by assisting them in identifying and protecting the critical elements of 

our financial infrastructure that they possess. 

So as we sit here today, we have recent reminders of how crucial 

it is constantly to review and refine the safeguards of our financial 

infrastructure. I look forward to hearing from our witnesses what 

they have done to protect the physical body of the nation’s financial 

system from harm, and what we can do to be of assistance in that 

effort. 

I thank all the panelists for being here and yield back my balance. 

Mrs. KELLY. Thank you very much. 

Mr. Bachus? 

Mr. BACHUS. I thank the Chairman. 

I would say in response to what Ms. Maloney said, that of course 

the structure for responding to a terrorist attack actually was established back in 1998 by Presidential Decision Directive 63, 

signed by President Clinton. Then it was refined by Executive 

Order by President Bush right after 9/11. I think that the experience that we had on 9/11, that experience was that our financial 

markets are very resilient and that we were in fact prepared for 

something which is almost impossible to be prepared for, something 

we never faced before. But the financial markets functioned very 

well, and showed a great amount of resilience. 

Despite the infrastructure damage to the World Trade towers 

and actually the physical loss of the facilities, the market operations recovered very quickly. I think we are all amazed at how 

quickly they responded. I think that is very good news. The GAO 

did make certain recommendations, but again a lot of what you all 

focused on was because really you were directed to focus on those 

things. I think all in all, clearing and settlement, if you do not 

focus on those things, you have a real problem. As far as retail 

firms and trading organizations, I think since the last year and a 

half, and we are going to hear from our second panel, you have 

done a great deal to focus on that. I know the latest threat is what 

the two speakers before are focused on, was actually car bombs or 

a bomb which would take out some physical structure. 

But you are actually, our first panel, you are the designated people under the presidential directives to be in charge, and the designated agency for our financial institutions is the Treasury Department, working with other organizations. So I think the underlying message ought to be that financial institutions, our financial 

markets performed very well under a tremendous attack. The market did not recover, but that was a result of just market factors and 

facing a new threat, and the facts of uncertainty in the world, not 

anything to do actually with the inability of the markets to operate. 

I would also say, and I am sure that there will be a question addressing this, there are certain things that you have asked us to 

do, and one of them is the netting provisions, which in the Congress, we passed it out of the House, but the Senate has never 

5

taken it up. You have identified that as one of your top priorities 

in case of another financial attack. So this Congress really has 

failed to do some of the things that you have said are most important. 

So with that, I end my comments, but I applaud the administration for everything they have done. 

[The prepared statement of Hon. Spencer Bachus can be found 

on page 50 in the appendix.] 

Mrs. KELLY. Thank you very much. 

Mr. Hinojosa? 

Mr. HINOJOSA. Thank you, Chairwoman Kelly. 

I want to thank you and Ranking Member Frank for holding this 

very important hearing today. 

The United States needs to remain prepared for any and all terrorist attacks following the horror that we endured on 9/11. We 

need to remain vigilant to ensure that similar attacks never happen again on U.S. soil. 

As I noted during the committee’s hearing on the 9/11 Commission report during the August recess, we here in the United States 

need to focus on increasing the security of our own documentation 

such as driver’s licenses, passports, and visas in order to prevent 

such terrorists from entering the United States again. The 9/11 

Commission Vice Chairman Lee Hamilton agreed that we need to 

increase the security of our own documentation and such measures 

should include requiring biometric information and security features such as fingerprints, digitized photos, holograms and serial 

numbers on these types of documents, and increasing the technology with which financial institutions can verify IDs. 

Prior to 9/11, the United States consulate that required biometric 

information from individuals seeking entry into the United States 

was the U.S. consulate in Mexico. Such biometric data and more 

is now included as part of the 12 security features Mexico added 

to the matricula consular ID card in 2002. As the Washington 

Times noted some time ago, the updated matricula consular ID 

card is more secure than many of our U.S. documents. Perhaps we 

should emulate the security features incorporated into the card as 

we create a new, more secure system of documentation in the 

United States. 

The U.S. was very lucky that the 9/11 terrorist attacks did not 

completely halt the free flow of the U.S. capital markets for very 

long. Granted, the New York Stock Exchange and others closed 

down for a short time, and certain Federal Reserve Bank airplanes 

were unable to fly for a time due to the flight restrictions following 

the terrorist attacks. These Federal Reserve flights are an integral 

part of the payment clearinghouse system in the United States. 

Nonetheless, I was very impressed by the ability of the New York 

Stock Exchange to adapt quickly to the terrorist situation and to 

accommodate the trades of so many exchanges on its own system 

in the days following 9/11. 

I ask that the balance of my opening statement be included, 

Madam Chair. 

[The prepared statement of Hon. Rube ́n Hinojosa can be found 

on page 55 in the appendix.] 

6

Mrs. KELLY. Of course. We would be glad to include the opening 

statement of anyone of the members of this committee, and it is so 

moved. 

Mr. Leach, have you an opening statement? 

Mr. LEACH. Just briefly. Just very briefly let me mention a couple of things by perspective. As everybody in banking knows, a century ago a famous bank robber once commented that, why do you 

rob banks? You do it because that is where the money is. But the 

interesting aspect about the modern financial system is that financial institutions and trading institutions are not where the money 

is. It is simply where assets are traded and kept track of. Great 

violence applied to a bank; great violence applied to a trading institution in one sense does not destroy a lot of assets. It destroys to 

some degree or disrupts tracking mechanisms, but if there is good 

redundancy, the system itself can be not harmed gravely. So redundancy is really the issue. 

Secondly, I think that we ought to beware that even though it 

is true that Congress has really been slacking in its discipline in 

not putting forth a netting bill, which is a very important bill and 

one which I have long advocated, and it is not done largely because 

we have problems that related to inter-institutional committees of 

jurisdiction, but hopefully it will happen this year. But the big 

issue is, what happens if there is a calamity? Here, the great aspect of perspective is that we have had for many decades authorized an institution of the United States Government, the Federal 

Reserve, to liquefy any calamity anywhere in the world, but particularly in the United States. So if something awful were to happen to a financial institution, the Fed is there to make sure the 

system can be sustaining. 

I only say this because acts against the financial community are 

acts of barbarism, but they are not acts that bring down the American system. They are simply acts of barbarism. Everybody in the 

private and public sector has to be very concerned that we get any 

system that goes down, up and running again, but that can happen. The American system will not be affected as a country. It will 

simply be a disruption. That is the way we have to work at it because we cannot perfectly protect anybody and anything. 

Let me just in conclusion say, because I tried to discount the importance of the netting bill, let me raise its importance again. It 

is really irresponsible that Congress has not acted yet to put forth 

a bill that settles derivatives-type trading instruments on an orderly basis instantaneously. We are obligated to do that and I am 

hopeful that that will happen this fall. 

Thank you, Madam Chairman. 

Mrs. KELLY. We turn now to Mr. Gutierrez. 

Mr. GUTIERREZ. Good morning and thank you, Madam Chairman, for calling this hearing on protecting our nation’s financial infrastructure. I am particularly pleased that we will be hearing from 

Brian Tishuk of ChicagoFIRST, an organization composed of Chicago’s primary financial institutions that was formed to address 

these various issues. 

ChicagoFIRST is an excellent example of a public-private partnership that should serve as a model for other regions. We will be 

hearing in detail about the formation of the organization, which 

7

was not an easy task. We will also hear about their recent tabletop 

exercise which tested the partnership’s ability to function under 

the threat of a terrorist attack. At the appropriate time, I will be 

asking the Department of Homeland Security about certain matters in the written testimony, specifically the fact that 

ChicagoFIRST has discussed with DHS its interest in hardening 

Chicago in general and the financial district specifically. 

As part of that, ChicagoFIRST has recommended funding for certain equipment being sought by both the City of Chicago and 

ChicagoFIRST; the placement of a DHS center in Chicago; and has 

asked for DHS’s help in procuring security clearances for certain financial representatives so that they can participate more actively 

in the protection of the city’s financial infrastructure. These recommendations and requests have apparently gone unheeded and 

no answers have been forthcoming from Homeland Security to 

ChicagoFIRST. I will be asking DHS, though it has been helpful to 

ChicagoFIRST, if it could take more of an initiative to reaching out 

to financial centers other than Chicago to promote regional partnerships. 

I wish to thank my colleague, Congressman Emanuel, for his request that ChicagoFIRST testify before us, and I look forward to 

the testimony, as well as the testimony of the other witnesses. 

Thank you, Madam Chairman. 

Mrs. KELLY. Thank you very much, Mr. Gutierrez. 

Mr. Scott. 

Mr. SCOTT. Thank you very much, Chairlady. 

This is a very timely hearing, and I, like many people across this 

nation, am quite worried about another possible attack. I certainly 

want to thank Chairman Oxley and Ranking Member Frank, Ms. 

Kelly, for holding these hearings today. 

The recent warnings of attacks on financial services targets 

caused no disruption to financial activity. However, concrete Jersey 

barriers have multiplied around New York and Washington. While 

these temporary barriers provide some cosmetic protections against 

potential terrorist attacks such as car bombs, what about suicide 

bombers who could very well just be walking Wall Street or any of 

the streets in the area or any of the streets in Washington, D.C., 

and get very close to us, as we have seen from other places around 

the world? 

To be prepared, to be vigilant, we need to know concretely, what 

is the role of our Federal Reserve? What is the role of our Treasury 

Department? How are their roles coordinated with our basic intelligence agencies of the CIA, the FBI and the Defense and State 

Departments’s intelligence agencies, of what is happening around 

the world in other financial capitals? I would be very interested to 

hear your response in terms of our reshuffling the deck on our intelligence operations to see if our financial services industry’s intelligence apparatus will work better under a new general authority 

of an intelligence czar. 

I think further also we have to work to prevent attacks by monitoring and by detecting terrorists. Let us take a look at certain organized crime groups that work concretely with terrorist organizations. I think also that we are going to have to look at other areas, 

our computer systems, our telecommunications networks, our elecVerDate 0ct 09 2002 11:29 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\DOCS\97449.TXT FIN1 PsN: MICAH
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trical power grids, our transportation systems, how all of those 

work. Also, terrorist organizations may be targeting cities other 

than New York and Washington, D.C. And maybe they may be 

even more likely targets, regional financial centers like Atlanta, 

Chicago, San Francisco, and Houston. 

It is important that the financial infrastructure include regional 

plans to address these threats. For example, federal agents recently arrested a man from Pakistan who was videotaping buildings in several southern cities, including my own city of Atlanta. 

And other regional threats, that would be power failures, natural 

disasters. 

Certainly, as Congress reviews the financial services industry’s 

readiness to respond to attacks, we must also work to ensure that 

any attacks do not cause long-term damage on creditworthiness of 

innocent consumers. And then finally looking at the world, and the 

impact of how, for example, a terrorist attack on a financial center 

such as Tokyo or Paris would have on our financial system, this 

particularly in view of the fact that we are the world’s leading financial center. 

These and many other questions I look forward to examining. I 

think this is a very important hearing this morning, and I look forward to each of your testimonies. 

Thank you, Madam Chair. 

Mrs. KELLY. Thank you, Mr. Scott. 

Without objection, all members’ opening statements will be made 

part of the record. 

We turn now to our first panel. We have three witnesses on our 

first panel: The Honorable Mark W. Olson, member of the Board 

of Governors, Federal Reserve. We have the Honorable Wayne 

Abernathy, Assistant Secretary of the Treasury for Financial Institutions, Department of Treasury. And we have the Honorable Robert Liscouski, Assistant Secretary of Homeland Security for Infrastructure Protection. 

Without objection, your written statements will be made part of 

the record. You will each be recognized for a 5-minute summary of 

your testimony. I am sure that all of you have testified in front of 

these committees before, so I do not need to explain the lighting 

system. 

Mr. Olson, let us begin with you. 

STATEMENT OF HON. MARK W. OLSON, MEMBER, BOARD OF 

GOVERNORS, FEDERAL RESERVE SYSTEM 

Mr. OLSON. Thank you very much, Chairwoman Kelly. We thank 

you, Ranking Member Frank, Chairman Oxley and members of the 

committee for holding this hearing. I agree with all of the members 

who have acknowledged that this is an important subject and a 

very timely subject. 

A number of questions have come up. I would be happy to address them as the questioning goes around, but let me just open 

by talking about three specific points that I would like to highlight. 

First, many of you started your opening remarks by talking about 

the efforts of 9/11. Of course, that was what constituted the start 

of a new era for us in terms of our recognition of both the exposure 

9

to terrorism activities and other threats to the financial services 

system. 

The Federal Reserve, of course, responded that day by providing, 

among other things, $100 billion of liquidity into the financial services system, as Congressman Leach alluded to in his opening remarks. I think that the resilience of the system at that point was 

demonstrated by a number of facts. Number one, the fact that the 

Fed over the course of a 5-day, in fact even a several-week period, 

responded in a different way providing either liquidity or overdraft 

protection or responding to changing needs as a result of the excesses of float that were building up in some parts of the system. 

We also initiated the swap lines for currencies with other central 

banks, indicating the cooperation internationally that we have been 

able to achieve and had achieved up to that point. Beyond that 

point, the Fed then began to look at its own resiliency. We initiated 

40 different efforts to test our own ability to provide financial services, the redundancy necessary to provide the financial services, 

and the ability to sustain operations over a period of time. 

I would point out that on 9/11, the Federal Reserve Bank of New 

York did not close; that last weekend with the hurricane in Miami, 

the Miami Fed and Jacksonville Fed did not close. So we have a 

very strong track record of being able to meet those needs. 

Beyond our own efforts, of course, an interagency team produced 

a white paper involving the Fed, the Comptroller of the Currency, 

and the SEC, where we identified the requirements of the critical 

financial institutions in order to meet clearing and settlement responsibilities on an ongoing basis, and in order to meet the critical 

functions of the financial services network. For each of the institutions that have been identified, a target deadline has been set to 

achieve the level of readiness which is anticipated either in 2005 

or 2006, depending on their starting points. 

Additionally, and this is the point that a number of you alluded 

to, there is a heightened level of cooperation among the federal 

agencies and within the private sector. The Treasury Department 

has been designated as the lead as sector liaison, and we have been 

happy to work with them. I think the resilience of it and the importance of it was brought out in response to the elevation to code orange under the direction of Homeland Security. In our judgment, 

that worked very well and we achieved a state of readiness very 

rapidly after the information was made available. 

Indeed, Congresswoman and members of the committee, we feel 

that the financial institutions sector has progressed in a very significant way over the course of the past several years, particularly 

the last 3 years, and it continues to improve. It is a moving target, 

as we learn more about the potential threat. As Congressman Scott 

suggested, we need to adjust as new information is produced, and 

we have done so. 

I would be happy to answer questions when my time comes. 

[The prepared statement of Hon. Mark W. Olson can be found on 

page 125 in the appendix.] 

Mrs. KELLY. Thank you very much, Mr. Olson. 

Mr. Abernathy. 

10

STATEMENT OF HON. WAYNE ABERNATHY, ASSISTANT SECRETARY FOR FINANCIAL INSTITUTIONS, U.S. DEPARTMENT 

OF TREASURY 

Mr. ABERNATHY. Chairwoman Kelly, Ranking Member Frank, 

members of the committee, I am pleased to tell you that the financial services sector is in a state of advanced readiness and preparation, and that it handled well the recent information about terrorist 

targeting of specific institutions. Customers were able to continue 

business as usual. While there was concern, there was no crisis. 

There was no panic, but rather activation of planned steps to mitigate exposure to risks. I applaud our intelligence and law enforcement agencies for obtaining this vital information and promptly 

sharing it with the affected institutions. 

President Bush has led the development and implementation of 

an effective program to defend our country against terrorism. Protection of our financial infrastructure is a key element of that program and much valuable work has already been done. That is because we have long known in general what recent information has 

reaffirmed with specificity, that our financial institutions are being 

targeted by our enemies. They are under assault every day. Most 

of these assaults are in the nature of electronic or cyber attacks 

such as computer viruses, trojans, worms and various forms of financial fraud, including fishing and spoofing. These assaults have 

progressed from computer hackers and pranksters into theft, and 

now we believe on to schemes to disrupt organizations and operations. 

Some of these attacks have their sources in organized crime. Increasingly, still more sinister actors are involved. I do not say this 

to be alarmist, but rather to make the point that our financial institutions have for some time now been operating in a dangerous 

environment, and they are becoming increasingly adept at doing so 

successfully. This success is a result of careful organization and 

hard work by the private sector and government agencies at all levels. 

The organized government effort today is based upon a directive 

from President Bush, Homeland Security Presidential Directive 7. 

This is a flexible, coordinated program that works well in marshaling resources and activities. HSPD-7 places upon the Department of Homeland Security the central responsibility for coordinating the overall national program. The directive relies upon specific agencies to take the immediate lead, ensuring that critical protection efforts will be led by departments that have the expertise 

and experience. Treasury is the lead agency for the banking and 

finance sector. 

Nearly all of the financial infrastructure is owned by the private 

sector. We work closely with the private sector through reliance 

upon several organizations. Chief among these is the Financial 

Services Sector Coordinating Council or FSSCC, the chairman of 

which is appointed by the Treasury secretary. The current chairman is Don Donahue, a senior officer of the Depository Trust & 

Clearing Corporation in New York City. The FSSCC is made up of 

entities and trade associations representing virtually every financial institution in the nation. 

11

Alongside the FSSCC is the Financial Services Information-Sharing and Analysis Center, or FS-ISAC, the chief communications 

system for the sector on a wide variety of threats and challenges. 

Last year, Treasury devoted $2 million to develop and implement 

a plan for broadening the reach of the FS-ISAC. In the last couple 

of weeks, Federal Housing Finance Board Chairman Alicia 

Castaneda and I sent a joint letter to each of the federal home loan 

banks encouraging them to join the FS-ISAC. We continue to encourage all financial institutions to sign up. 

Under the sponsorship of the President’s Working Group on Financial Markets, and chaired by the Treasury, the Financial and 

Banking Information Infrastructure Committee, or FBIIC, brings 

together representatives of all of the federal and state financial 

regulators. A cardinal rule of the FBIIC and the key to its success 

and achievement over the last several years is the principle of responsibility. The FBIIC does not try to take over the responsibility 

or interfere in the work of any agency. What the FBIIC provides 

is a means of coordinating efforts, sharing best practices, pooling 

talents and resources, facilitating communication, encouraging 

wherever possible and cajoling where necessary. 

While terrorist threats themselves are bad news, I see much good 

news in our latest experience. Our antiterrorism efforts are bearing 

fruit, providing valuable information that is being applied and 

acted upon appropriately by the financial sector just as soon as it 

is made available, without disruption or degradation of services. 

The success of the collective actions of the federal, state and local 

governments and the preparedness and response of the private sector are progressively denying terrorists their objective, their goal of 

disrupting our free markets. Freedom and free markets are the targets of the terrorists, and we are showing that we can harness the 

power of free people and free institutions to defeat the terrorists. 

So in conclusion, there is much work yet to do, but tremendous 

work has already been done. Our markets are deeper, more resilient than ever before, and they are becoming more so every day. 

Thank you. 

[The prepared statement of Hon. Wayne Abernathy can be found 

on page 59 in the appendix.] 

Mrs. KELLY. Thank you, Mr. Abernathy. 

Mr. Liscouski. 

STATEMENT OF ROBERT LISCOUSKI, ASSISTANT SECRETARY, 

INFORMATION ANALYSIS AND INFRASTRUCTURE PROTECTION, DEPARTMENT OF HOMELAND SECURITY 

Mr. LISCOUSKI. Good morning and thank you, Chairwoman Kelly 

and Ranking Member Frank and distinguished members of the 

committee. It is a pleasure to be before you this morning to discuss 

the protections that we have with the financial services sector. I 

am going to address some of the comments specifically in the question-answer period, but I would like to give an overview of where 

we are today in working with the Department of Treasury and the 

Fed. 

The Office of Infrastructure Protection specifically has focused on 

monitoring and assessing threats and vulnerabilities to all sectors, 

including the banking and the financial services sector. Before I 

12

begin, I would like to recognize the efforts of the Department of 

Treasury and the Fed, and commend them for their leadership to 

organize and take the first steps to protect the financial infrastructure prior to September 11. 

Subsequent to the creation of the Department of Homeland Security, the Treasury Department and the Fed have been key partners 

with DHS in continuing the execution of our efforts to protect our 

critical infrastructure. In preparation for responding to threats and 

elevated threat levels, my office and the directorate for which I 

work, IAIP, has been building and coordinating a two-way exchange of information with the public and private sectors. These efforts have also included building relationships with the private sector and government entities, as well as implementing and integrating technical and information-sharing solutions. 

The financial services sector has developed two effective mechanisms for two-way information sharing. The Financial Services Sector Coordinating Council, the FSSCC, as Assistant Secretary Abernathy just described, consists of senior representatives of major financial institutions representing a cross-section of the financial industry. The second component, the Financial Services Information 

Sharing and Analysis Center, the FS-ISAC, provides a mechanism 

for gathering and analyzing and appropriately sanitizing and subsequently disseminating information to and from its members and 

the federal government. The FS-ISAC conducts threat intelligence 

conference calls periodically at the unclassified level for subscriber 

members. With IAIP providing input, these calls cover physical and 

cyber-threats and vulnerabilities and incidents that have recently 

occurred. It includes suggestions and recommended proactive actions that can be taken to mitigate the threats. 

Sector coordinating councils and their ISACs maintain and provide DHS with distribution lists, which allow them to quickly disseminate threat warnings, alerts and advisories to members of 

their sectors. Information provided by the sectors is incorporated 

into the situational awareness picture, together along with the intelligence community’s information and the law enforcement community concerning possible threats to the nation’s critical infrastructures. 

The sectors are also capable of initiating crisis conference calls 

within an hour of notification via a crisis alert. In addition, DHS 

has established close working relationships with the appropriately 

cleared senior sector members such as the financial services sector 

to provide classified information relevant to the threat environment. 

The interconnected and interdependent nature of our infrastructure makes our physical and cyber-assets difficult to separate and 

therefore it would be ineffective and inefficient to address them in 

isolation. Consequently, my office integrates both the strategy and 

the tactics necessary for the appropriate protection of the cyber, 

physical and people assets in concert. In working with the infrastructure protection office of the United States secret service, for 

example, it recently joined forces with the Carnegie-Mellon University Software Engineering Institute’s CERT Coordination Center, 

CERT/CC, in order to conduct an analysis of the insider threat. 

13

The insider threat study is a collaborative effort to better understand the insider activities affecting information systems and data 

in critical infrastructure sectors, to include the banking and finance 

sector. The insider threat study examined incidents involving employees who intentionally exceeded or misused an authorized level 

of system access that affected the organization’s data, daily business operations, systems security, or other areas via computer. The 

study focused on online behaviors and communications in which 

the insiders engaged prior to the incidents. 

On August 24 of this year, the first part of the report was released to the public sector. It is referenced as the Insider Threat 

Study Elicits Cyber-Activity in the Banking and Finance Sector. 

This portion of the report focused on individuals who have had the 

access and perpetrated harm using information systems in the 

banking and finance sector, which includes credit unions, banks, 

investment firms, credit bureaus, and the financial institutions. 

The findings highlighted in this area of the report are of great benefit to the financial sector and provided concrete examples of how 

insiders accomplish their activities and offered suggestions on what 

security and policy procedures might deter or prevent future activity. 

I would like to discuss now the latest series of threats against 

U.S. financial institutions spurred by ongoing concerns over al 

Qaeda’s interest in targeting U.S. critical infrastructure, as well as 

recent intelligence revelations of detailed reconnaissance of several 

U.S. financial institutions. The level and specificity of information 

found was alarming, prompting DHS to recommend raising the 

threat level of orange for the financial services sector in New York, 

Northern New Jersey and Washington, D.C. on August 1. This was 

the first time the level had been changed for an individual sector 

and geographic-specific location. 

In response to the heightened threat level, IAIP acted on several 

fronts in coordination with Treasury and Fed to address the threat. 

Conference calls were arranged between DHS, industry leaders, 

chief security officers, state and homeland security officials, and 

local law enforcement officials, and with numerous financial institutions. Our relationship and communications with the private sector security leadership for the affected institutions particularly 

were key to our overall approach on how to effectively manage the 

threat situation. 

We provided immediate alerts to the financial sector regarding 

the threat and we continued to work with the industry to ensure 

that all targeted financial institutions were individually briefed. 

IAIP coordinated with federal, state and local law enforcement entities to ensure that the appropriate information was exchanged between government and the private sector. 

We also polled the various financial institutions to determine 

what additional protective measures were needed for implementation as a result of the heightened alert period. We dispatched personnel immediately to the facilities in Washington, New York and 

Northern New Jersey to conduct site-assist visits, which would 

evaluate the recommended security measures in collaboration with 

local law enforcement officials and asset-owners and operators to 

14

ensure that the appropriate vulnerabilities were identified and remediation measures were taken. 

In addition to the site-assist visits, IAIP personnel have been 

working with the individual facilities and local law enforcement to 

create buffer zones around the most critical facilities. These are 

community-based efforts focused on rapidly reducing vulnerabilities 

outside the fence of an institution or facility to select critical infrastructure components in key resources. We work closely with the 

law enforcement community and the private sector to ensure that 

these plans and implementation strategies are effective and efficient. 

As I have discussed with you today, IAIP has taken many actions 

to secure the financial services sector, in partnership with treasury 

and the Fed, and we have laid a foundation for a true partnership 

with the public and private sector. Based on this foundation, with 

continued dedication we will continue to work to protect the nation’s critical infrastructure. 

Thank you for the opportunity today and look forward to your 

questions. 

[The prepared statement of Robert Liscouski can be found on 

page 109 in the appendix.] 

Mrs. KELLY. Thank you very much, Mr. Liscouski. 

I would like to ask you about a question you just brought up. Mr. 

Liscouski, you mentioned the Carnegie study, and you talked about 

the insider threat. My first question, does it make any difference? 

You talked earlier about the department working with financial institutions and software companies to identify vulnerabilities and to 

design enhanced software assurance practices. Does it make any 

difference if these vulnerabilities are international or if they are 

home-grown? 

Mr. LISCOUSKI. The concern you raise is a valid one, particularly 

because of the way software is deployed throughout our critical infrastructure at-large and particularly in the banking and finance 

sector. Let me just preface my remarks by saying a holistic security 

program has to consider all elements of security. So it is a physical 

security approach, cyber as well as personnel security. The software assurance practices that you are discussing also include insurance that software is developed and engineered to the appropriate specs and standards and there are quality assurance conducted on software before it is shipped out. 

So when we talk about internationally developed software or that 

which is outsourced internationally versus that which is developed 

here in the United States, the first point in securing an institution, 

whether it be a banking institution or other critical infrastructure 

component, is to ensure that the appropriate procedures and mechanisms, the people and process part of the security approach, is 

taken. 

We cannot take a slice of that pie and examine it independently 

for its vulnerabilities without examining the interdependencies of 

the entire process. So we alleviate those concerns by assuring that 

best practices are followed within institutions, within critical infrastructure components, and good policies and procedures and security practices are set up, so we can mitigate the potential effects 

of any software vulnerability, irrespective of whether it is interVerDate 0ct 09 2002 11:29 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\DOCS\97449.TXT FIN1 PsN: MICAH
15

nationally developed or developed by an international company 

abroad or domestically. 

So the insider threat study looks at ways that those exploits 

could be manifested or can be exploited, and it looks at ways that 

security procedures and processes can be put in place to help mitigate that risk. 

Mrs. KELLY. What recommendations did the study make? Have 

you additional recommendations? Would you care to share that 

with the committee? 

Mr. LISCOUSKI. Yes, ma’am. I would refer to the report specifically. I apologize for not having a copy in front of me, but my recollection of the report, and I can validate this in writing to you later, 

it did not specifically address software development in the context 

of insider threat. It looked more from the perspective of the insider 

threat as a trusted user on a system, and therefore someone who 

potentially could abuse their trusted access internally to an organization. 

So in the context of that part of the study, there were a variety 

of recommendations made for procedures and policies which would 

limit a person’s access, but yet balancing the need for conducting 

business. So it focused on behavioral aspects of insiders that might 

foretell that there was a problem, as well as recommended policies 

that could help mitigate those threats. 

Mrs. KELLY. Thank you. I want to ask one other question of you, 

sir. What sorts of warning signs should financial institutions be 

looking for in the case of both physical and cyber attacks? Are 

there warning signs out there that these institutions should be 

looking for? 

Mr. LISCOUSKI. Yes, ma’am. I think this past month, in August 

and the end of July when we received the threat information is a 

good indicator or a good example of how those warning signs can 

be manifested. What we learned from the casing reports that were 

exploited from the information we received that resulted in the 

threat warning going up was that there is oftentimes detailed surveillance occurring at financial institutions and other critical infrastructure components which are observable behaviors. And subsequently, as we have indicated, these precursors or pre-incident indicators of terrorist activity resulting in surveillance, anomalous 

types of activities that can be observed need to be communicated. 

So what the lesson from that was that that information was 

shared with the private sector, the banking institutions in this case 

and the financial institutions, to be shared with their security personnel, and those folks were in a position to observe anomalous behavior and report that back. So the types of attacks that we are 

concerned about in this particular case were typically kinetic or 

bombing types of attacks, those which would require a breach of a 

perimeter and some sort of pre-operational surveillance to identify 

the vulnerabilities of a particular institution. Those things are all 

observable, and if they are observed and reported, we can get an 

indication of what is occurring pre-incident, just as an example of 

something that was shared. 

Mrs. KELLY. You looked at bombing attacks, did you say, but you 

have also looked at the cyber-threats. So you have looked at both 

sides of what is happening. 

16

Mr. LISCOUSKI. That is correct. In the context of the recent 

threat, the job of my office is precisely looking at the nexus of all 

threats, irrespective of if they seem to be dominated by a physical 

threat as in this case initially. We take a very detailed look at the 

cyber-environment to see if there is any activity that would indicate that a specific institution is being targeted as a result of various types of probing. So we consider all the threats, either cyber 

or physical or the people aspect of it, in concert when we get threat 

information. 

In this particular case, we had no evidence that there was a 

cyber-threat manifesting itself in the context of this particular 

physical threat. 

Mrs. KELLY. Thank you very much. 

My time is up. We turn now to Ms. Maloney. 

Mrs. MALONEY. I would like to ask the Fed, Honorable Mark 

Olson, the white paper you discussed focuses on clearing and settlement. Are you planning a companion piece focusing on the areas 

that the GAO noted were left out? They cited trading and retail 

firms. 

Mr. OLSON. A number of things have happened since the GAO 

study, or at least concurrent with the GAO study. Primarily among 

those was the release of an FFIEC best practices, that focused on 

those issues. So in addition to the clearing and settlement, there 

has been an internal effort within the regulatory agencies focused 

on the trading platforms and the retail platforms. 

Mrs. MALONEY. I would like to ask the Homeland Security Assistant Secretary, Robert Liscouski, I understand that we were 

lucky in that the targets identified in the recent terror alert were 

not facilities whose destruction would pose a systemic risk to our 

financial structure. Rather, they were highly visible targets whose 

destruction would likely cause a large loss of life and have a symbolic value of attacking some of the most successful institutions in 

our financial services. 

As you know, many of those targets are in cities. I would like to 

say that, especially New York City was cited in the last terrorist 

threat. Even worst, I believe, is that the facilities whose destruction would pose a systemic risk to our financial infrastructure are 

also largely located in major cities like the one I am privileged to 

represent, New York City. 

My question is, how does this square with a formula for funding 

homeland security protections under which, to give one example, 

New York, according to the congressional survey, CRS report, 

ranks number 35? Yet in our area, certainly financial infrastructure, both the systemic structures that could cause disruption to 

our services, and certainly the ones that even the terrorists cite 

that are symbolic, are in New York City and other large places. So 

I wonder why this is happening? I commissioned a CRS study myself which showed that New York City has gotten about 30 cents 

per person for every dollar, and other states have received much, 

much more. 

So just focusing on the infrastructure of our financial services, it 

seems incredibly unfair that New York City, which is cited by terrorists and also cited in intelligence briefings, is having the systemic structure that could really permit damage. 

17

Mr. LISCOUSKI. Ma’am, I am not familiar with the results of the 

study you cited. I would be happy to get back to you with the exact 

dollars that have been distributed to New York City. I do not have 

that in my data here. I can tell you I am working with the New 

York City Police Department and the homeland security adviser in 

New York, as well as the private sector institutions. They have a 

very robust capability to respond to that threat. 

As you well know, recently with the most recent threat situation 

we had in New York, the Department of Homeland Security as well 

as the New York City Police Department and the state police in 

New York responded very aggressively and very robustly to that 

particular threat. They were not impeded at all. We work very 

closely with the city in providing the appropriate level of resources 

they need to supplant their efforts. Again, I will get back to you 

in writing if you prefer, to respond to the exact dollar figures that 

have been provided. I just do not have that information. 

Mrs. MALONEY. Even the 9/11 Commission report noted that the 

funding formulas for high-threat homeland security, they called it 

‘‘pork barrel’’ politics, and certainly it should be based on need. I 

would appreciate your getting back to me. 

Mrs. KELLY. Thank you very much. Ms. Maloney, your time is 

up. 

Mrs. MALONEY. The light is not red yet. 

Mrs. KELLY. Oh, I am sorry. I thought it was. 

Mrs. MALONEY. Okay. I would like to ask Mr. Olson, did the 

events of 9/11 reveal a need for either new powers for the Fed or 

a need for new arrangements with the private sector, for example, 

foreign banks? 

Mr. OLSON. Clearly, Congresswoman, we recognized that following 9/11 one of the most important things that we needed to 

have happen is that the Fed needed to be designated as an enforcement agency. That was accomplished in the Patriot Act. Congress 

responded very rapidly to that important need. 

I think the response to 9/11 suggested to us is that there was a 

need to consider the risks at a level at which we had never considered them before, which is exactly what your opening series of 

questions was designed to get at, the most chilling of which was 

up to that point most business continuity plans were made presuming that the people would still be there. Post 9/11, that was the 

one thing that changed and the one thing that was different, and 

the one thing that we now anticipate seeing both from our own perspective and when we examine financial institutions. 

The CHAIRMAN. [Presiding.] The gentlelady’s time has expired. 

The gentlelady from Illinois, Ms. Biggert. 

Mrs. BIGGERT. Thank you very much, Mr. Chairman, and thank 

you members of the panel for your testimony and efforts to help 

America’s financial sector prepare to withstand catastrophic events. 

I am going to address my first question to Mr. Liscouski. I also 

am from Illinois, as the Chairman just said, and we do have concerns here about ChicagoFIRST. We will hear testimony later, so 

I do not want to say too much about it. I am concerned, and I 

would like to ask you what the Department of Homeland Security 

is doing to promote and encourage the infrastructure preparedness 

in the financial service sector, particularly with ChicagoFIRST, 

18

which was a group formed by the financial sector in Chicago in the 

outlying areas after September 11. 

I think the achievements that they have found in a regional way 

that they have to really have at their tabletop to have 27 financial 

institutions serving the City of Chicago, all of the agencies, the 

Federal Bureau of Investigation, Federal Deposit Insurance Corporation, FEMA, financial and banking information infrastructure. 

What seemed to be missing there with all of these agencies was 

really the Department of Homeland Security stepping up to the 

plate and really being there for that, and to see how that works. 

Because I think that we see this as a model that can be used across 

the country. It seems that there has not been much support from 

the Department of Homeland Security. 

Mr. LISCOUSKI. Congresswoman, thank you for your question. Actually, I would like to just add some more context to that, because 

I believe that since we have started up we have provided a lot of 

support to the financial sector, and particularly to the Chicago 

Mercantile Exchange and others where we have done tabletop exercises. So I think maybe a lack of initial visible support was just a 

function of the way we were starting up our organization. 

Since that time, in the past year and a half, we have been working very closely with the sectors, particularly in the Chicago area. 

I think at the first tabletop, ChicagoFIRST was just standing up, 

so it might have been a little bit too early at that point. I can give 

you more details on that. But as you well know, working with 

Treasury and other members of the financial sector, we stood up 

at the Financial Services ISAC to conduct a number of tabletop exercises, all geared at the financial sector. We broadened the financial sector’s tabletop exercises to not just include the cyber aspects, 

but now physical aspects. We are taking that on the road so we 

now can do more interdependent sector-type of tabletop exercises, 

just not uniquely those positioned for the financial services sector. 

We are working very closely with the U.S. Secret Service, which 

is part of DHS as you well know. We have a very close working 

relationship with the investigative division of the U.S. Secret Service in remediating and working real-time on investigations and 

identifying various vulnerabilities in the financial sector, and 

quickly remediating those vulnerabilities in a virtual sense, working with banks and other financial institutions as they are found. 

So while we have been building up our processes within DHS, I 

would remind you we have been around for about a year-and-a-half 

now. My department really was something that came up virtually 

with very little infrastructure of its own. As we have been building 

it and building partnerships, I think we have a very effective and 

very good story to tell there. So as I pointed out, we are funding 

many different types. These tabletop exercises are a prime way for 

us to be able to ensure that we have best practices and effective 

measures for protection of the financial sector. 

ChicagoFIRST has been on our list now to work with. We understand that there is a request for some financing outside the FSISAC. We are working with them to examine that, maybe not as 

quickly as they would like at this point, but as in all things they 

do take some time, so we are examining those opportunities. I 

19

would suggest to you that we will find ways that we continue to 

work with the financial sector. 

Mrs. BIGGERT. I know that the testimony in the next panel will 

address those issues and say that they really have received no communication from the department as far as their inquiries into the 

funding, into procuring security clearances for key financial representatives, so that there can be a deeper collaboration. It seems 

to me that this does seem to be a real model, and I would hope that 

you would work closely with them and use them. 

Mr. LISCOUSKI. Sure. I will take that under advisement and I 

will look into that specifically and get back to you. Thank you. 

Mrs. BIGGERT. All right. Thank you. 

And then Mr. Abernathy, certainly the Department of Treasury 

has been involved with ChicagoFIRST, too. Could you tell me a little bit about how you have worked with the ChicagoFIRST? 

Mr. ABERNATHY. We certainly agree with you, Congresswoman 

Biggert, that ChicagoFIRST is a model to be taken around the 

country. We were involved with the ChicagoFIRST from its beginnings. In fact, one of my senior staffers is currently the head of 

ChicagoFIRST, Brian Tishuk. He was very much involved when he 

was working for Treasury in helping to get ChicagoFIRST organized. 

But I want to give the chief credit to the financial community in 

Chicago that came together and realized that they have some very 

important national financial assets in that city that need protecting, and the best way to protect them is to coordinate efforts, 

to team up and to recognize that when it comes to protecting the 

financial infrastructure, it is not a matter of competition. It is a 

matter of coordination and cooperation. 

What we are now in the process of doing is working together 

with the Financial Services Roundtable’s BITS organization, another industry-coordinating organization, to document how 

ChicagoFIRST was put together, how it works, and put together 

what we call a cook book that we would then like to take to the 

other financial centers around the country and have them apply it 

as appropriate in those cities. 

Mrs. BIGGERT. Thank you very much. I yield back, Mr. Chairman. 

The CHAIRMAN. The gentlelady yields back. 

The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much, Chairman Oxley. 

I have a couple of questions. First Governor Olson, in your testimony you stated that vulnerabilities continue to pose challenges to 

the financial system and that sound practices will be able to help 

recover from a widescale disruption. Yet you mention that sound 

practices addresses only recovery, and not prevention of a terrorist 

attack. I would like for you to talk about that for a moment, and 

particularly answer this question in light of that. Is the Federal 

Reserve currently involved with providing information or sharing 

information with law enforcement agencies to help prevent attack? 

What is the Federal Reserve doing in working with our other intelligence agencies to prevent the attack? Answer that one first. 

Mr. OLSON. Sure. It is an excellent question and it gets to the 

heart of what we spend a great deal of our time doing. In the postVerDate 0ct 09 2002 11:29 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 G:\DOCS\97449.TXT FIN1 PsN: MICAH
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9/11 era, we in particular have strengthened the resiliency. We 

have increased our focus on prevention. We begin with a premise 

that our number one priority is our people, so you cannot focus on 

your people without focusing primarily on prevention. So what we 

have done is we have looked at our perimeter security, and we 

have significantly upgraded both the quality and the quantity of 

our protection force, not simply at the Fed in Washington, but also 

throughout the Federal Reserve System. 

We have increased our communication with law enforcement 

agencies and with other governmental agencies. We have monitored information carefully. The reason I bring that point up is because when we reviewed the information that was intercepted in 

the last several months, we have discovered how much information 

that was intercepted was information that was already on the public record. So we choose not to be real specific in a public forum. 

But you and other members of this committee are entitled to a lot 

more information on what we are doing, and we would be very 

happy to provide a private briefing for you on what we are doing 

in that area, because your questions are right on point. Much of 

what we are doing, particularly in the way of perimeter security, 

is involved in protection. 

Mr. SCOTT. Thank you very much. I would be interested in that 

other detail. 

Mr. OLSON. I have one more follow-up, because I would be remiss 

if I do not speak to it. The telecommunications area is one that we 

are still working on because of the interdependency of both the financial institutions and the interconnectivity among the private 

sector telecommunication companies. We are working jointly with 

that industry to try to assure a greater protective capability, but 

that is a subject which we will continue to focus on and hopefully 

the Congress will too. 

Mr. SCOTT. Thank you, Governor. 

Assistant Secretary Abernathy, in your testimony you said that 

most of the assaults on our nation’s financial institutions are cyber 

attacks, computer viruses and organized crime. Could you share 

with this committee how those three areas impact our readiness for 

these terrorist attacks, organized crime, cyber attacks and computer viruses? And have you seen any evidence that terrorists have 

been sophisticated enough to mimic these types of attack? And how 

are they coordinating it, especially with organized crime? 

Mr. ABERNATHY. Congressman, you have zeroed in on what I 

think is probably the number one area of concern and effort in 

terms of responding to existing vulnerabilities. We have done a 

good job as far as I think can be done with regard to the physical 

security. But with regard to the danger to the systems, the question is, what are the vulnerabilities to these cyber-attacks? As I 

mention in my testimony, we have seen them evolve from the 

pranksters into organized crime, and now we are beginning to see 

what we think is a pattern suggesting that it is going beyond organized crime to perhaps terrorists or others that are not interested 

in stealing the money so much as trying to keep the systems from 

operating. 

We have been working very carefully with the financial institutions themselves, as well as the computer experts, the makers of 

21

software, the designers of the hardware, and the designers of the 

systems, to create a more resilient system to respond to those kinds 

of cyber-attacks that might occur. 

Mr. SCOTT. When you say ‘‘organized crime,’’ are we talking 

about American organized crime? Are we talking about international organized crime? 

Mr. ABERNATHY. It is both, sir. Now, American organized crime, 

but one that is particularly difficult to deal with is organized crime 

that originates from a foreign country. That is something that we 

have seen on the significant increase in recent months. 

Mr. SCOTT. Okay. My last point was, if I could Mr. Chairman, 

very quickly, you also stated, Mr. Abernathy, that you sent a letter 

to the federal home loan banks to ask that they join the Financial 

Services Information Sharing and Analysis Center. Have you heard 

from these banks? If so, what have they said? 

Mr. ABERNATHY. We have just recently sent the letter, so as we 

expect it takes time for them to process and make the decisions. 

We have asked the FS-ISAC, the financial services organization 

itself, to make the direct contacts to these banks and to ask them, 

you have heard from the secretary, the assistant secretary; you 

have heard from the chairman of the Federal Housing Finance 

Board; are you ready to sign on. We are very hopeful that they will, 

but we have not had any takers yet to this point, but it is still 

early. 

Mr. SCOTT. Thank you. 

Thank you for your generosity, Mr. Chairman. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Iowa, Mr. Leach. 

Mr. LEACH. I am just trying to put a sense of perspective in what 

you are saying. It is impressive to me that a couple of words have 

come up. One is resiliency of institutions; another is redundancy of 

systems. It strikes me that the two R’s are probably the most important concepts. 

Just in terms of defense of our systems, I think we have to make 

it clear that decapitation does not bring us down. That is, loss of 

life, as Mr. Olson mentioned, is something that we are prepared to 

deal with in terms of how we proceed in the future. 

My concern is that we have a dual circumstance, resiliency and 

redundancy in the private sector. We also have it in the public sector. In an emergency, the Fed is the center point. So I would like 

to ask Mr. Olson, are you confident of the Fed’s resiliency and the 

Fed’s redundancy of systems? While it was not designed for this 

purpose, does the fact that you have regional institutions magnify 

your strengths? Is decentralization also a systemic strength? 

Mr. OLSON. Let me answer your questions in the reverse order 

of the one in which you asked them. In terms of the dispersal, the 

fact that we have Fed systems throughout the country is indeed 

part of our strength. It is part of our strength in terms of its role 

in monetary policy, but it also provides us with a physical diversity 

that is very important for us, while we are assuring both the resiliency and the redundancy. It meant that in many cases our ability 

to provide backup or partnering, the capability, the facilities were 

already there to do so. So that is particularly important. 

22

In terms of our ability to meet future circumstances as they unfold, I think that the best way to respond to that is evaluating the 

manner in which we have responded in the past, for example to 9/

11. I think the fact that the banking system did not close; that at 

no point in time did any customer even in Manhattan not have access to their personal financial information. Now, they might not 

have had access to the information at the branch or the ATM 

where they were accustomed to having it, but it was available because of the resiliency of the system and because of the large numbers of systems. 

So I would say we are cautiously confidence. That is not a subject 

that we would ever take for granted. 

Mr. LEACH. Is there such a thing as a Fed in a mountain? 

[Laughter.] 

Mr. OLSON. I am not sure what you are asking me. 

Mr. LEACH. What I am saying is, do you have a second Federal 

Reserve headquarters? 

Mr. OLSON. Oh. Could I get back to you on that on a private 

basis? 

Mr. LEACH. Of course, fair enough. 

Mr. OLSON. As with Congressman Scott, these are important 

questions that we would be happy to provide that information for 

you in another setting. 

Mr. LEACH. Fair enough. Just one final, just to be very precise, 

the subject of Congress’s approach to a possible bill on netting has 

been raised and addressed. I am correct in assuming that as Chairman Greenspan indicated in the last hearing, the Federal Reserve 

strongly supports a netting bill. Is that correct? 

Mr. OLSON. Very much so. We appreciate your support and the 

support of the other members of this committee who have indicated 

their support for moving that bill. That would be a very important 

step forward, we believe. 

Mr. LEACH. Treasury concurs? 

Mr. ABERNATHY. Yes, sir. We would like to see that enacted either as part of the bankruptcy legislation or as free-standing legislation. It is very important. 

Mr. LEACH. And our third witness, you would concur on that as 

well? Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from North Carolina, Mr. Miller. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. 

My questions are about private sector preparedness and what we 

are doing to encourage it. The 9/11 Commission devoted a page to 

the topic. They pointed out that 85 percent of the critical infrastructure was in private sector hands. They said that they had encouraged the American National Standards Institute, ANSI, a very 

well respected industry group, to develop and promulgate national 

standards for preparedness, convening safety, security, business 

community experts, and to develop a voluntary national preparedness standard. 

Mr. Liscouski, do you agree that those standards should be voluntary? Should there be some force of law behind them? Let me 

first disagree to some extent with Mr. Leach, who said that he 

23

thought an attack on our financial institutions would be an act of 

barbarism, but not something that would bring our system down. 

It strikes me that a serious disruption in our financial institutions 

could have a catastrophic effect on our economy. Do you agree, first 

of all, that the risk is grave to our economy generally? And then 

second, that whatever standards we come up with, what we think 

the private sector should be doing, should be voluntary, as opposed 

to having some force of law behind it? 

Mr. LISCOUSKI. Congressman Miller, I do not want to take this 

out of context, but I believe the statement regarding the catastrophic effect of the attack was the concern about the most recent 

threat. 

Mr. MILLER OF NORTH CAROLINA. I was not referring to anybody 

else’s testimony, then. I was talking about my own perception. I 

have attended a hearing on the Science Committee about the loss 

or disruption of the electrical grid. If that happened, the ripple effect through our economy could be very, very serious. It strikes me 

that the same thing is true in the financial services sector. If American business cannot get access to money, they cannot pay their 

bills, they cannot make payroll, they cannot buy materials. The 

people they do business with are not getting paid, and on and on. 

The possible loss there is serious. Do you not agree with that? 

Mr. LISCOUSKI. Of course. In the broad context of what the overall catastrophic effect could be on the financial services in general, 

yes, that is exactly the type of thing we look at from the consequence-of-loss perspective. We always look at the consequence of 

loss when we are looking at sectors and vulnerabilities. 

Mr. MILLER OF NORTH CAROLINA. Okay. How about the voluntariness? Do you think it should be voluntary or do you think there 

should be some force of law behind the standards that ANSI has 

promulgated, that the 9/11 Commission has said need to be abided 

by American business? 

Mr. LISCOUSKI. I just want to conclude my previous comment by 

saying that we have yet to see, however, anything that would 

manifest itself in terms of a threat that would be at that catastrophic loss level. With respect to standards and regulation, as 

you well know the financial industry is fairly well regulated now. 

The standards that are imposed by the regulation in many cases 

adequately addresses the requirements to meet the specific threats 

that we are operating against. 

I think in a general sense with respect to standards, we are looking to establish best practices and guidelines throughout the community, all the critical infrastructure components, to ensure that 

we get good compliance and practices to respond to various types 

of threat scenarios against which we are operating. Whether it be 

ANSI, we are currently working with the American Society of Mechanical Engineers to develop ways to bake into business processes 

for best practices. It is at that level that we think we can have the 

most benefit to affect the outcome of security for the long term. 

I think the challenge in terms of looking at regulation or standards to remediate against a current threat, and they can never 

happen quickly enough. I think the best efforts we can make are 

looking for long-term systemic changes in business practices and 

security practices for the industry is irrespective in the financial 

24

sector across critical infrastructure. My office in particular in working with the private sector to ensure that we take that approach. 

The one thing we have to be very careful of is that there is not 

a one-size-fits-all standard. We have to be careful about ensuring 

that when we look at it. 

Mr. MILLER OF NORTH CAROLINA. I am not sure I got an answer 

to my basic question of what should be behind it other than a hope 

for goodwill. 

Mr. Abernathy, in your testimony you said the FBIIC will also 

try to share best practices, encouraging whenever possible, cajoling 

where necessary. That strikes me as a fairly limited range of options. First, we are going to encourage you, and if you do not do 

right, we are going to ratchet up and cajole you. I am not sure the 

prospect of being cajoled is going to strike fear in the hearts of a 

lot of folks. Is that your whole range of options, to encourage compliance with best practices or standards or whatever you call it? 

Mr. ABERNATHY. Let me explain the context. The cajoling and encouraging is with regard to the federal and state regulatory agencies themselves. We do not have any enforcement authority with 

regard to the Securities and Exchange Commission, but the Securities and Exchange Commission, for example, has very significant 

authorities with regard to the entities that they supervise. 

So when it comes to the encouraging and cajoling, it is making 

sure that the banking regulators, including the Fed, the SEC and 

other banking regulators are using their authorities to make sure 

that the financial institutions themselves are applying their regulatory powers and employing the kinds of best practices that you 

talk about, what the various standards are, to make sure that they 

are able to continue to provide the services that they are chartered 

to provide. 

So the enforcement tools are in the hands of the regulators. The 

job of the FBIIC is to make sure that the regulators are using and 

applying those enforcement tools. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Alabama, Mr. Bachus. 

Mr. BACHUS. Thank you, Mr. Chairman. 

Governor Olson, I want to commend you. We talked about netting earlier, and I want to commend you and the Fed because 

Chairman Greenspan in some testimony before the Congress recently talked about how important the netting provisions were. So 

I hope the Senate gets the message, and we are able to include that 

in some legislation. 

Mr. OLSON. We thank the members of this committee that have 

been supportive in that effort. We agree that it is important. 

Mr. BACHUS. I would take this time just to say again that, Chairman Oxley, before 9/11 took steps which I think this committee, 

working with the regulators, to ensure that our financial institutions and our markets did go through 9/11 I think in an exemplary 

way. 

My two questions I am going to ask are for Assistant Secretary 

Abernathy. You mentioned that $2 million that Treasury spent on 

the Financial Services Information Sharing and Analysis Center. 

Mr. ABERNATHY. Yes, sir. 

25

Mr. BACHUS. Can you tell me about what Treasury’s commitment 

is to that center, which was formed actually by Executive Order? 

Mr. ABERNATHY. The center itself was formed in 1999, if I am not 

mistaken. 

Mr. BACHUS. Or 1998, by a presidential decision. 

Mr. ABERNATHY. Yes. It was actually formed by the private sector pursuant to encouragement from the federal government, but it 

is a privately created and organized entity. What we did was in recent years, we looked at that entity that originally had a very narrow focus, coordinating the largest financial institutions. In visiting 

with them, we said in order to do your job you need to be able to 

reach all of the financial institutions. Of course, their response 

was, how do we do it? 

So we funded a consulting group to look at just how you can expand the FS-ISAC and have it self-supporting. The FS-ISAC does 

not receive any operating funds from the federal government and 

we wanted to have a system that was sustainable by being funded 

by its members exclusively. We have come up with a plan and a 

reorganization that we believe is working and is moving forward 

very well. 

Mr. BACHUS. What are your plans in regard to the future of the 

center? 

Mr. ABERNATHY. It is to continue to have it develop as the central means of coordinating information among the whole financial 

sector. To demonstrate just how flexible it is, we have various levels of communication that are available on the FS-ISAC. There are 

first of all threat announcements that go out to everybody, but it 

is also a platform where specific segments of the financial sector 

can get together and communicate with one another on important 

critical infrastructure problems, and we are seeing already a number of efforts to do that and to use that as the platform for it. 

Mr. BACHUS. Okay. Treasury provides critical financial services 

that need protection every day, like daily check forecasts and cash 

forecasts and collection and disbursement of federal funds or federal monies, conducting Treasury auctions, things of that nature. 

What are you doing to see that these important functions are somewhat insulated against potential threats? 

Mr. ABERNATHY. You are absolutely right, Congressman. Besides 

being the chairman of these coordinating roles, Treasury itself has 

important roles in the financial system, particularly with regard to 

the movement of all the federal money, both the money that is 

coming in and then the money that is disbursed to pay all the bills 

and all of the checks. We frequently work with that element of 

Treasury in those particular bureaus to make sure that they have 

those two words that Congressman Leach talked about, resilient 

and redundant operations in place. We feel very confident that 

Treasury has those not only established, but we test them frequently. 

Mr. BACHUS. All right. I have no further questions. I would like 

to say for the record, I think this is correct, the PDD-63 which 

President Clinton authorized and it was amended by Executive 

Order, but I think that mandated that the center be established. 

I could be wrong, but I am pretty sure that that would make sense 

because that was 1998, and if it was created in 1999. 

26

Mr. ABERNATHY. Yes, I believe that is right. What I wanted to 

emphasize, though, is that it is a privately owned entity and we 

think it derives a lot of strength because of that, fostered by government, if you will, and encouraged, and it is built into a network 

of other ISACs. But its strength comes from the fact that it is 

owned and governed by the private sector. 

Mr. BACHUS. Right. And I think we will see that in the second 

group of panelists who are some of the stakeholders or participants. 

The CHAIRMAN. The gentleman’s time has expired. 

The Chair would announce we have about 8 minutes left on two 

floor votes. I would ask the gentleman from New York if he would 

be brief. 

Mr. ACKERMAN. Brief. 

The CHAIRMAN. That was the word I was looking for. The gentleman from New York. 

Mr. ACKERMAN. Yesterday, the nation received very startling information from the Vice President of the United States. He contended that if he were not reelected, together with the President, 

and the Democrats instead were elected, that hundreds of thousands of Americans would be killed in a terrorist attack. I would 

like to know if that is a bunch of political hyperbole, or in the hard 

work that you have been doing at the Federal Reserve, at the 

Treasury Department, at Homeland Security, you have come across 

any information whatsoever, over the transom, rumors, chatter, or 

anything else that would indicate that there is any validity or truth 

to what the Vice President says. 

Mr. OLSON. Speaking on behalf of the Fed, that is above my pay 

grade, Congressman. I do not have access to the information to answer it. 

Mr. ACKERMAN. So you have seen no information that that is 

true? 

Mr. OLSON. I would say that the question is above my pay grade. 

I have not addressed the question. 

Mr. ABERNATHY. Congressman, I did not see the comments so I 

would not want to comment on it for my own. I will just add that 

we see constantly, as I have pointed out in my testimony, that the 

financial services sector is under assault every single day. 

Mr. ACKERMAN. Nothing to do with Democrats? 

Mr. ABERNATHY. As far as I can tell, it is a continuous assault 

that is not letting up in intensity. 

Mr. ACKERMAN. Under a Republican administration. 

Mr. ABERNATHY. This has been in place now happening for numbers of years. 

Mr. ACKERMAN. But there is no indication that it is politically biased. Okay. 

Mr. ABERNATHY. Nothing that I have seen. 

Mr. ACKERMAN. And Homeland Security? 

Mr. LISCOUSKI. I think my colleagues have perfectly addressed 

the question, sir. Thank you. 

Mr. ACKERMAN. Has anybody made contingency plans just in 

case the Democrats are elected, in any of your agencies? 

[Laughter.] 

The CHAIRMAN. I have made some contingency plans. 

27

[Laughter.] 

Mr. ACKERMAN. I do not mean about your future personally. I 

thank the panel and I thank the Chairman for his indulgence. 

The CHAIRMAN. Thank you. 

Ms. Lee? 

Ms. LEE. Thank you, Mr. Chairman. 

Very quickly, let me just thank you again for being here. I come 

from the San Francisco Bay Area, and of course we are very concerned not only from attacks and vulnerabilities as it relates to 

natural disasters, but of course as it relates to vulnerabilities from 

terrorism. 

I would just like to know what, as you see it in terms of the Bay 

Area, in terms of financial institutions, because many of the top financial institutions are in the San Francisco Bay Area, what do 

you see as some of the vulnerabilities? 

What do you recommend, especially Mr. Liscouski, in terms of 

the coordination between federal, state and local officials in terms 

of the San Francisco Bay Area? 

Mr. LISCOUSKI. Without getting into the specifics of the protective measures and the vulnerabilities, it is probably not appropriate for this forum, but I think I can talk generally speaking with 

respect to our coordination with state and local officials. We work 

very closely with the Homeland Security officials in California, and 

specifically the local officials in San Francisco, and routinely. 

I would be happy to provide to you a separate reporting as far 

as what specific measures we have taken, again just out of deference for the type of information we are talking about. 

Ms. LEE. Thank you. 

Assistant Secretary Abernathy, what do you identify or have you 

looked at some of the greatest vulnerabilities facing San Francisco’s financial district? Is that part of the overall planning that 

you have done? 

Mr. ABERNATHY. One of the things that we do on a constant basis 

is trying to identify what are the key critical elements of the financial infrastructure; what their vulnerabilities are and then how we 

can address those. Certainly, we look at wherever they are. They 

are not located all in New York City. Some are there, and some are 

in other parts of the country. Financial services are extremely important to the economy of San Francisco and from San Francisco 

a lot of important financial services are provided throughout the 

nation. 

One of the things that we think will be of great help to San 

Francisco and other money centers around the country is, as I mentioned, this cook book that we are putting together of looking at the 

ChicagoFIRST model and providing that to financial centers 

around the country and encouraging them to develop appropriate 

coordinating efforts in their cities as well. 

The CHAIRMAN. The gentlelady’s time has expired. We have to go 

to vote. 

Ms. LEE. Okay. We have to go. 

The CHAIRMAN. I want to just take the Chair’s prerogative to ask 

Mr. Abernathy the status of TRIA, and just a few comments, then 

we have to close this down. 

28

Mr. ABERNATHY. Certainly, Mr. Chairman. We are progressing as 

the law has outlined for us an analysis of how the Act is performing. We put in place, as I think we mentioned here previously, 

a very meticulous, sequenced data collection exercise so we could 

see just what is happening on the ground. 

The CHAIRMAN. As required in the Act. 

Mr. ABERNATHY. As required in the Act. We just received the 

most recent collection of data from insurance providers. We are 

also looking at developments not only here in the United States, 

but there is a very interesting development with connection to the 

Olympic Games. 

There we had some very prominent activities that had absolutely 

no government support at all that were able to find terrorism risk 

insurance. We are looking at that example to see what it tells us 

with regard to the availability of the products. 

The CHAIRMAN. I thank all of you, and this panel is dismissed. 

The committee stands in recess until 12 noon. 

[Recess.] 

Mrs. KELLY. [Presiding.] We welcome our second panel today. We 

have Mr. Robert G. Britz, president and co-chief operating officer 

of the New York Stock Exchange; Mr. John Mohr, chief operating 

officer, New York Clearing House; Mr. Wilton Dolloff, executive 

vice president, operations and technology, Huntington Bancshares 

Incorporated, on behalf of BITS and the Financial Services Roundtable; and Mr. Samuel Gaer, chief information officer, New York 

Mercantile Exchange. 

Mr. Emanuel, I understand that you would like to introduce our 

next guest on the panel. 

Mr. EMANUEL. Thank you, and thank you for holding this hearing. 

I first went to meet with Brian and the ChicagoFIRST group a 

couple of months ago. Brian Tishuk is the executive director, and 

prior to that he had a distinguished career at Treasury working on 

a set of issues over there. ChicagoFIRST, in Brian’s discussion and 

in answer to questions, will show as a role model to what other cities can do in a sense of the private sector coming together, starting 

ready-to-do planning to deal with unintended events. 

In Chicago, like other major financial centers, we have about 

320,000 to 350,000 jobs in the area who rely on the financial services industry, leaders in the future, it is an options industry. And 

what ChicagoFIRST has done is a remarkable job in coordination 

with also what the City of Chicago has done. 

So I am pleased that the Chairwoman agreed to have 

ChicagoFIRST and Brian as a person to testify today. As I told 

Brian earlier, I have Alan Greenspan in the Budget Committee, 

and no disrespect intended, I am going to get and go there and ask 

my questions of Chairman Greenspan so I can tell Brian what interest rates are going to be like tomorrow. 

I want to thank the Chairlady for holding this hearing and thank 

the entire panel for giving their time today. 

Mrs. KELLY. Thank you very much. 

Let us begin with you, Mr. Britz. 

29

STATEMENT OF ROBERT G. BRITZ, PRESIDENT AND CO-CHIEF 

OPERATING OFFICER, NEW YORK STOCK EXCHANGE, INC. 

Mr. BRITZ. Thank you, Chairwoman Kelly. 

Ranking Member Frank, distinguished members of the committee, I am Robert Britz. I am president and co-chief operating officer of the New York Stock Exchange. As such, I am directly responsible for the day-to-day operation of our market, our trading 

floor, our data-processing sites, our technical infrastructure, software development, and our information business. In addition, I also 

serve as the chairman of the Securities Industry Automation Corporation, or SIAC, which is a technology subsidiary of the New 

York Stock Exchange and the American Stock Exchange. 

On behalf of the NYSE, I want to thank the committee for holding this hearing and giving us the forum to discuss the NYSE’s investment in business continuity and contingency planning post-9/

11. The NYSE lists more than 2,750 companies with a combined 

market capitalization of around $18 trillion. Just for context, the 

next-largest marketplace in the world hovers between $2 trillion 

and $3 trillion. We trade on average 1.5 billion shares a day, or in 

dollar terms about $50 billion. Ensuring the world’s largest equity 

market can open for business every day under all circumstances is 

clearly our highest priority. 

Madam Chairwoman, the NYSE has a long history of developing 

forward-looking business continuity strategies that harden and protect our physical and technology infrastructure and improve our 

ability to withstand or recover from a disaster. Our approach consists of three components: to prevent an attack or natural catastrophe; to withstand them; and to recover from them. 

In close cooperation with federal, state and local law enforcement, the Exchange has expanded its physical security perimeter. 

We have also taken measures to increase the screening of all people, package delivery and mail that enters the NYSE or our data 

centers. And we have instituted a more restrictive policy vis-a-vis 

visitors and deliveries. Business continuity planning did not begin 

after 9/11. Before 9/11, we made sure that all of our facilities had 

emergency generators, uninterrupted power supply, and stored 

water on-site, to enable continued operation after the potential loss 

of power or water. 

Our technology infrastructure was already connected to a private 

extranet that utilizes geographically redundant fiber routes. The 

NYSE and SIAC employ large security forces and invest in automated security systems to protect the infrastructure. Significant investments have been made in information security personnel and 

infrastructure to protect our systems from intrusions and attacks, 

while enabling our business partners to connect to the NYSE technology complex in a secure manner. 

Our primary trading floor is actually five different trading floors 

located in four different buildings. Trading can be moved from one 

location to another as may be necessary. Since September 11, the 

NYSE has made an investment totaling more than $100 million to 

prevent and/or recover from an interruption to our market. The 

specific business continuity programs include both new initiatives, 

as well as enhancements to existing programs. In particular, the 

NYSE has built a contingency trading floor, expanded SIAC’s emerVerDate 0ct 09 2002 11:29 Jan 07, 2005 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\DOCS\97449.TXT FIN1 PsN: MICAH
30

gency command center, created the Secure Financial Transaction 

Infrastructure network or so-called SFTI network, constructed a remote network operations center, and recently received approval to 

establish a remote national market system data center. 

The NYSE’s regulatory group filed and the SEC recently approved new business continuity rules, Rule 446 for NYSE-member 

firms. In addition, beyond ensuring the resiliency of the NYSE, to 

ensure continuity of trading the NYSE has modified its systems to 

accept four-character symbols so that we can be a position to trade 

over-the-counter Nasdaq securities should that ever be necessary. 

In addition, we have enhanced NYSE and SIAC disaster recovery 

planning, physical and information security; developed and implemented a mandatory business continuity training program for all 

NYSE and SIAC employees; enhanced emergency employee communication systems to ensure key personnel can be reached; and 

all personnel have access to relevant and timely information in an 

event. We have instituted a temporal dispersion initiative with respect to the data center staff, and we also are adding additional 

generating capacity at the New York Stock Exchange proper. 

The NYSE employs a rigorous information technology structure 

to ensure reliability of all of the information that we receive, process and disseminate to the world every day. We employ external 

perimeters, firewalls, intrusion detection, internal access controls, 

and we conduct penetration testing with so-called ‘‘friendly’’ hackers. 

The NYSE and SIAC launched the Secure Financial Transaction 

Infrastructure network, or SFTI, as I mentioned a moment ago. It 

has become the primary extranet serving the financial industry. It 

provides diverse redundant routing to SIAC data centers for member firms, national market system participants that are connected 

to the NYSE, to the American Stock Exchange, the National Market System, and DTCC’s IT infrastructure as well. 

Following 9/11, U.S. equity trading was interrupted because 

many broker-dealers lost their connectivity to the markets due to 

the damage suffered by a major central telecommunications switching facility near ground zero. SFTI addresses this by enabling 

member firms to connect to the NYSE’s data centers via multiple 

access points, so-called carrier hotels throughout the New York 

metropolitan area, as well as Boston and Chicago. From these access centers, message traffic is carried over a geographically diverse fiber network owned and managed by SIAC. 

Beyond the resiliency of our market, the NYSE is prepared to 

trade Nasdaq stocks if that case ever arises. While NYSE systems 

have been modified and can support four-character symbols used 

by the unlisted stocks, no need for any modification on the part of 

the broker-dealer systems. And because our capacity today, NYSE’s 

capacity vis-a-vis its own stocks, is about five times our average 

daily volume of 1.5 billion shares, we have no question about the 

ability to absorb the extra traffic resulting from Nasdaq stocks. 

Madam Chairman, in your invitation to testify this morning, you 

also asked that the NYSE share its experiences relative to the limited code orange threat issued on August 1. On Sunday, August 1, 

Secretary Ridge of the U.S. Department of Homeland Security announced that al Qaeda was targeting specific sites in Washington, 

31

D.C.; Newark, New Jersey; and New York City, including the 

NYSE. In addition, Secretary Ridge announced that the Department of Homeland Security was raising the terror threat level to 

orange for New York City. At approximately 6 p.m. the prior 

evening, the New York office of the FBI contacted NYSE security 

officials to inform them that the FBI had information that was very 

pertinent to the NYSE, and they requested that we meet with them 

immediately, which indeed we did. 

This intelligence clearly indicated that al Qaeda had surveiled 

the NYSE. On Sunday, August 1, the FBI and the NYPD informed 

the NYSE that there would be immediate increase in NYPD officers and NYPD ‘‘Hercules’’ teams deployed around the NYSE’s perimeter. In addition, the NYPD would increase the number of truck 

inspections for vehicles traveling south of Canal Street to determine if those trucks actually needed to proceed downtown toward 

the financial district. 

On Sunday, August 1, the NYPD pledged their assistance for police department access and cooperation during the heightened 

alert. The Department of Homeland Security, as well as other federal, state and local agencies, notified the NYSE before Secretary 

Ridge’s announcement that the exchange was a specific target. 

With this advance notice, the NYSE was able to communicate with 

its employees through our contingency Web sites. Under these contingency sites, we are able to provide timely information about the 

status of our operations for Monday, August 2, to members, member firms, member firm employees, and NYSE employees. 

On Tuesday, August 3, NYSE officials met with Homeland Security Secretary Ridge, New York City Mayor Michael Bloomberg and 

both pledged their cooperation in the provision of federal and New 

York City assets as needed. 

Since 9/11, all of our efforts have served to increase the NYSE’s 

physical security, presence, and its business continuity planning. 

Our enhanced business continuity contingency planning are online 

and being tested every day. Unlike many localities and sites, New 

York City and the NYSE remain at a higher level and will remain 

at a heightened alert to protect the people and the infrastructure 

that operate the NYSE’s agency-oriented market. 

In the event of another terrorist attack or catastrophe, the NYSE 

plans to resume trading in a timely, fair and orderly fashion that 

will provide confidence to America’s 85 million investors. While the 

NYSE and SIAC have implemented a comprehensive contingency 

plan that will provide for an orderly resumption of trading in the 

event of an attack or other catastrophe, we cannot prepare for 

every possible contingency. We will continue to work with the SEC, 

the Department of Treasury, Homeland Security, and the NYSE’s 

member firms, the financial services industry, and federal, state 

and local law enforcement to address the threats and to implement 

strategies and solutions. 

I hope the foregoing is helpful to the committee. We look forward 

to working with this committee going forward on matters of mutual 

interest, and I would be happy to answer any questions. Thank 

you. 

[The prepared statement of Robert G. Britz can be found on page 

65 in the appendix.] 

32

Mrs. KELLY. Thank you so much, Mr. Britz. 

Mr. Mohr? 

STATEMENT OF JOHN MOHR, EXECUTIVE VICE PRESIDENT, 

NEW YORK CLEARING HOUSE 

Mr. MOHR. Good afternoon. My name is John Mohr and I am an 

executive vice president of The Clearing House, which is 

headquartered in New York. Just to correct the record of the cover 

sheet of the testimony, it lists me there as the chief operating officer. I wish that I were, but I am not. 

Mrs. KELLY. Thank you. 

Mr. MOHR. We are headquartered in New York and we are the 

nation’s oldest and largest clearinghouse. We are owned by 19 very 

large, global, international and regional banks. We were founded in 

1853, and we are a private sector global payments system infrastructure that clears and settles more than $1.5 trillion each day. 

We serve as an industry forum for addressing strategic and regulatory issues dealing with payments made in U.S. dollars. The 

Clearing House serves more than 1,600 U.S. financial institutions 

and manages payment services that span the entire spectrum of 

paper, paper-to-electronic, and electronic payments. 

I want to thank you for this opportunity to update you on steps 

we have taken to further strengthen the key elements of the U.S. 

payment infrastructure which are operated by The Clearing House. 

One of the key lessons learned from the 9/11 disasters was that 

from a business continuity perspective business as usual was no 

longer adequate. Contingency and business continuity plans needed 

to be reevaluated and refocused. 

Since 9/11, the financial industry has increased its focus on the 

resiliency of its high-value payment systems. It is universally 

agreed that systems such as CHIPS, which is our large-value payment system, must be capable of resuming full capacity operations 

quickly, within hours of any catastrophe. We take this responsibility seriously. It is worth noting that CHIPS never skipped a beat 

on 9/11 and the days that followed. 

CHIPS itself operated without interruption during the entire crisis and all 56 banks that connect to it were able to continue to conduct business. This included the 19 banks that were located in or 

near the World Trade Center. Each of these banks was required to 

relocate their operations to contingency sites in the middle of an 

unimaginable disaster. The fact that this was successfully accomplished I believe is a great testament to the leadership in these 

banks. 

Following 9/11, our management reviewed the events of the week 

for lessons learned. Some of the things that we have done, we 

added additional security staff to perform more frequent and random patrols of our facilities. We conducted penetration tests of both 

our physical security and our logical security for our systems. We 

reconfigured one of our facilities to make it better prepared to prevent penetration. We implemented state-of-the-art biometric access 

controls. We also all but eliminated visitor access to all of our operating centers. 

We reviewed where our critical employees worked and relocated 

some of these individuals to avoid a concentration risk of having 

33

too many key individuals in one place. We have taken measures to 

ensure that key operations and support staff have secure remote 

access to our electronic systems so that they can operate remotely 

in the event that they cannot get to our principal operating centers. 

For many years, The Clearing House has operated fully redundant 

data centers, each with the capability of backing up the other. To 

further enhance its resiliency, we have developed and out-of-region 

third data center. This new center is fully equipped to take over 

the operation of CHIPS within an hour of a simultaneous failure 

of the other two sites. 

One key procedure which was reaffirmed during the events of 9/

11 is contingency tests. Mandatory testing of contingency capabilities has been conducted by CHIPS since the early 1980s. The tests 

cover a variety of disaster scenarios and exercise the backup and 

recovery capabilities of the participants, as well as CHIPS. The 

performance of each participant during these tests is evaluated by 

The Clearing House and those banks that fail the test are required 

to continue to re-test until they pass. The discipline of regular testing helped contribute to the quick recovery of the banks following 

the events of 9/11. Since 9/11, we have expanded our own testing 

regimen to include two tests a year, coordinated with the Federal 

Reserve’s Fedwire system. 

Another significant initiative led by the Clearing House following 

the events of 9/11 was our Intercept Forum which addressed the 

question, what could financial institutions, working with the public 

sector, do to eliminate the flow of funds to terrorists and their organizations. We had senior representatives from 34 public and private sector organizations. This forum identified five task groups 

which were co-led by representatives from both the public and private sectors. These five groups, let me touch on them briefly: patterns of behavior, account transaction monitoring, and global cooperation. 

The first three I think are easily understood, their purpose, their 

mission clearly understood by the names of their groups. The other 

two, control list, following the events of 9/11, the banks and the 

regulators and the law enforcement agencies needed to sit down 

and clarify what we were trying to accomplish in terms of identifying terrorists, flows of funds to terrorists, what policies and procedures had to be in place, what new was being put in place. All 

this had to be communicated effectively, so we put a group together 

to work on that. 

Our fifth group, a database team, was originally set up to develop a highly secure real-time capability to download suspected 

terrorist information and to upload hits that financial institutions 

may have, reporting them back to the law enforcement agencies. 

This fifth group was superseded by FinCEN and their PAC system 

which was set up in 2003, I believe. We work closely with them 

and handed over that responsibility to them. All of our banks have 

been working with them since. 

I think the Intercept Forum is a great example of the private and 

public sector’s ability to work together to achieve shared goals. Financial institutions, law enforcement agencies, and regulators were 

able to draw upon each other’s core competencies in a cooperative 

way and achieve meaningful results. It is clear that going forward 

34

we will need continued cooperation in all three areas to be successful. 

Thank you. 

[The prepared statement of John Mohr can be found on page 116 

in the appendix.] 

Mrs. KELLY. Thank you. 

Mr. Dolloff, I understand that Mr. Tiberi was wanting to come 

to introduce you because you were a fellow Ohioan. I hope you will 

take my introduction, from being a former Ohioan who now is in 

New York. We are delighted to have you here. You may proceed. 

STATEMENT OF WILTON DOLLOFF, EXECUTIVE VICE PRESIDENT, OPERATIONS AND TECHNOLOGY, HUNTINGTON BANCSHARES INCORPORATED, ON BEHALF OF BITS AND THE FINANCIAL SERVICES ROUNDTABLE 

Mr. DOLLOFF. Thank you, Madam Chairman and members of the 

committee for this opportunity to testify about the financial services industry’s efforts to address critical infrastructure protection. 

I am Wilton Dolloff, executive vice president for operations and 

technology at Huntington Bancshares, Incorporated. I am pleased 

to appear before you today on behalf of BITS and the Financial 

Services Roundtable. I have submitted a written statement that 

provides details on efforts by BITS and the financial services industry to strengthen our nation’s critical infrastructure. 

I would like to use this time today to deliver three messages. 

First, the financial services industry is doing an outstanding job 

strengthening our slice of the critical infrastructure pie. Among 

other things, we have developed emergency communication tools, 

conducted worst-case scenario exercises, engaged in partnerships 

with the telecommunications sector and key software providers, 

compiled lessons-learned from the 9/11 attacks and the August 

2003 blackout, and combated new forms of online fraud. 

Second, as you know, our industry is heavily regulated. The regulators have stepped up their oversight, but we cannot address 

these problems alone. Our partners in other sectors, primarily telecommunications, power, software, must also do their fair share to 

ensure the soundness of the nation’s critical infrastructure. 

Third, I want to review several recommendations for the Congress to consider. Since 9/11, our sector has done a lot to respond 

to the risk we face today. Protecting our nation’s critical financial 

services infrastructure is a top priority. I would like to highlight 

several efforts to help assure the security stability of our sector. 

We have improved communications and enhanced our ability to 

analyze and disseminate information. For example, we have enhanced the financial services information sharing and analysis center, the ISAC, providing an important tool for members to share 

and analyze cyber and physical threat and vulnerability information. In addition, we have established the BITS-FSR crisis communicator. This high-speed alert system rapidly notifies CEOs and 

CIOs and others as appropriate to convene conference calls during 

which industry leaders share information and make decisions. The 

system was recently activated on August 1 immediately following 

the threat-level escalation by the Department of Homeland Security for the financial industry. 

35

One of the key lessons learned in recent years is our sector’s dependence on other critical infrastructure sectors, namely telecommunications and power. BITS is working with the telecommunications industry to identify and mitigate vulnerabilities 

and enhance recoverability. While the cooperation between these 

two sectors has been unprecedented, much more work remains to 

be done. 

In August 2003, the blackout occurred in the Northeast. It gave 

us an opportunity to test our assumptions about what would happen in a large-scale loss of power. In general, the financial services 

industry performed well. Backup systems operated. Alternate communications systems were used and there was no measurable impact on settlements and payments. 

Our industry has also been working hard to strengthen cyber-security. We have stepped up our efforts by sharing information, analyzing threats and working more closely with the software industry. In December 2003, BITS surveyed its members on the cost of 

addressing software vulnerabilities and learned that costs are approaching $1 billion annually. In February 2004, BITS and the 

Roundtable held a cyber-security CEO summit to launch efforts to 

promote CEO-to-CEO dialogue on software security issues. 

In short, we want the software industry to improve the security 

of products and services that they provide to us. Just as financial 

institutions are key targets for hackers and other cyber-criminals, 

our industry is increasingly the target of fraudsters operating online. We are responding to the escalation in identity theft with a 

series of steps to facilitate prevention of the crime and assist victims when it occurs. The cornerstone to these efforts is the BITSFSR Identity Theft Assistance Center, or ITAC. The concept of this 

pilot program is to provide a simplified recovery process that benefits victims by relieving much of the current burden of reporting 

the theft and restoring one’s financial identity. 

The Congress can help the financial services sector meet the 

challenge of the post-9/11 environment in three ways. Number one, 

encourage the telecommunications industry to provide diverse and 

reliable services to critical infrastructure sectors. Two, recognize 

the dependence of all critical infrastructures on the software operating systems and the Internet. And finally, number three, encourage law enforcement to prosecute cyber-criminals and identity 

thieves and publicize U.S. Government efforts to do so. 

I am pleased that Congress has an active interest in helping to 

shore up the financial sector against vulnerabilities and hope that 

we can work together to heighten security. Financial firms will continue to work diligently to achieve the level of security that our 

customers demand. 

Madam Chairman, I will be happy to answer any questions. 

Thank you. 

[The prepared statement of Wilton Dolloff can be found on page 

86 in the appendix.] 

Mrs. KELLY. Thank you so much. 

Mr. Gaer, we welcome you. 

36

STATEMENT OF SAMUEL GAER, CHIEF INFORMATION 

OFFICER, NY MERCANTILE EXCHANGE 

Mr. GAER. Thank you, Madam Chairwoman. Good morning, and 

thank you to the members of the committee for inviting me to address the issue of emergency preparation and vigilance for the financial services sector. The subject matter is of timely concern and 

I sincerely welcome the opportunity to both express what the New 

York Mercantile Exchange has accomplished to date, as well as to 

express concerns regarding areas in which you might consider providing assistance to our efforts going forward. 

The Exchange is the world’s largest physical commodities futures 

exchange and has been an example of market integrity and price 

transparency throughout its 132-year history. Commercial enterprises and government entities all over the world use our marketplace to manage their energy metals risk, a function that is particularly critical to the global economy in any time of crisis. The 

Exchange is also a technology leader in the futures industry, developing robust, redundant, best-of-breed trade management clearing 

and reporting systems capable of quick fail-over to backup systems 

when required. 

No preparedness planning, however, can be accomplished without a careful analysis of the business that needs to be protected. 

Our core business is trading and clearing. In order to ensure the 

continuity of this core business, we have pursued several alternatives. The Exchange headquarters was designed to be as redundant as possible, including the availability of backup generators, 

which became critical during the blackout of 2003. 

One of the first priorities for the Exchange after September 11, 

for example, was to build a replica trading floor which contains 

trading rings, administrative space, live price feeds, and a fully 

operational and redundant data center. In other words, it is a complete facility. This facility has been powered-up since the beginning 

of the Iraq War and is ready to go on a moment’s notice. 

The Exchange also has two electronic trading systems, both of 

which have round-the-clock trading capability. In fact, we were the 

first exchange in New York to reopen following September 11 when 

we opened our electronic trading system for a 2-hour session on 

September 14, which resulted in a record 70,000 contracts being 

traded in 2 hours. 

During an emergency, the high-level strategic decision-making 

authority rests with the crisis management team which we call the 

CMT. It is comprised of members of the executive committee of the 

board of directors, C-level executives and critical senior executives. 

Their role is to assess a threat and if necessary provide an official 

declaration of disaster, to interface with the members of the exchange, and to coordinate with industry and regulatory agencies. 

Maintaining communication between recovery units and resources is the single most important aspect of any emergency recovery effort. The Exchange has gone to great lengths to ensure 

that the CMT and their subordinates are all able to communicate, 

including provision of cell phones with two-way radios, mobile email devices, laptops with cellular modems which we affectionately 

call footballs, and access to CFTC-sponsored GETS cards. Every 

critical exchange system is duplicated and can provide services in 

37

the event the main facility or system is unavailable. Data moves 

across redundant optical fiber links, linking our backup site to the 

primary site. In addition to the network created between the two 

hot sites, the Exchange maintains multiple links to Internet service 

providers. 

Training, education and regular testing will ensure that the systems and staff are ready to respond to any event that disrupts our 

business. Ongoing planning for events keeps the Exchange planners in top form. The Exchange, along with the Futures Industry 

Association, or the FIA, have begun planning a major multi-company and multi-exchange coordinated testing effort which will culminate in the first annual industry-wide disaster recovery test this 

fall on Saturday, October 9. The effort is extremely important to 

our industry and will be repeated annually. 

As a critical infrastructure organization, we strive to learn from 

every event we face. So what were the lessons we learned from the 

various events that we have handled recently? The tragic and cataclysmic events that took place on September 11, 2001 showed us 

that planning for emergencies that involve a single company, building or service is no longer adequate. As we look back at 9/11, the 

relationships the Exchange has forged with government agencies 

will always be of critical importance in planning for and support 

during an emergency event. In addition, the relationships our 

member firms have formed with important government leaders 

have enabled the Exchange to overcome many difficult recovery 

challenges in the past. 

The blackout of 2003 taught us different lessons, foremost of 

which is that the unavailability of a facility is not a prerequisite 

to an emergency event. Multiple redundant service providers need 

to be secured for all critical business services. Other events that 

the Exchange planners carefully consider are the planning we have 

done for the Republican National Convention and the regular disaster recovery testing and mock disasters that the Exchange conducts all serve to reinforce and fine-tune the planning we have at 

the ready. Communications stands alone as the key equalizer when 

facing the surprises any emergency delivers. A disaster gives no 

advance warning. 

Madam Chairwoman, in closing I ask this committee to consider 

the following concerns from the Exchange. As an integral part of 

the critical infrastructure, the Exchange already manages a full 

complement of continuity plans, backup sites and emergency operation locations. However, our business relies upon the coordination 

of many services within the financial sector. It also relies heavily 

on telecommunications, utility and transportation infrastructure 

over which the Exchange has no control. The Exchange is prepared 

to recover our systems and business processes if faced with another 

event such as 9/11, but the recovery of the services and the price 

discovery mechanisms we provide to the financial services sector 

and economy also relies on resiliencies of the external businesses 

on which the Exchange depends. 

I would like to thank the Chairwoman and the members of this 

committee for inviting the Exchange to speak with the other distinguished panelists on this extremely important topic. I would be 

happy to answer any questions the committee has. 

38

[The prepared statement of Samuel Gaer can be found on page 

101 in the appendix.] 

Mrs. KELLY. Thank you very much, Mr. Gaer. 

Mr. Tishuk. 

STATEMENT OF BRIAN S. TISHUK, EXECUTIVE DIRECTOR, 

CHICAGOFIRST 

Mr. TISHUK. Good afternoon. Chairman Kelly, members of the Financial Services Committee, I am Brian Tishuk, the executive director of ChicagoFIRST, a coalition of 16 of Chicago’s leading financial institutions. A list of our members and government partners is 

appended to my written statement. 

Through ChicagoFIRST, these institutions cooperate with one another and collaborate with government to address common business 

continuity and homeland security issues. This ensures that our 

business continuity and disaster recovery plans conflict neither 

with one another nor with the government’s plans for prevention, 

response and recovery. 

In light of the events of September 11, the Chicago financial community, as others, reexamined and enhanced their individual business continuity plans. During the spring and summer of 2003, a 

number of these institutions also decided to form ChicagoFIRST. 

Two leaders took it upon themselves to commit their time and their 

respective firms’s resources to make this coalition a reality: Louis 

Rosenthal, executive vice president at LaSalle Bank and Ro 

Kumar, first vice president at the Options Clearing Corporation. 

From the beginning, our top priority was to get a seat in the 

city’s Joint Operations Center or JOC. The JOC is a place where 

different government agencies, city agencies, come together to address a crisis, whether it is a snowstorm or a terrorist attack. We 

sought a seat to ensure access to accurate and timely information 

in case of an emergency. We obtained this seat in July of 2003. Our 

members are also working with the city and the state to learn 

where our respective evacuation procedures may conflict and to 

take remedial action. 

Another absolutely critical objective for the financial community 

in Chicago is credentialing. ChicagoFIRST and the city are using 

an interim credentialing solution that we put together with them, 

while the city and the state together develop a permanent one. 

ChicagoFIRST is also working with the city and the Red Cross to 

develop shelter-in-place protocols. These best practices will protect 

our members’ employees at the office and their families at home. 

Now, every regional partnership will necessarily be unique. However, ChicagoFIRST has been constructed in a manner that would 

allow its salient elements to be replicated in other parts of the 

country. I would like to highlight four components of our model. 

First, financial institutions should organize themselves in a grassroots fashion and leadership should come from within the financial 

community. Second, with the critical infrastructure largely in the 

hands of the private sector, we have an obligation to put some 

‘‘skin in the game,’’ as the saying goes. However, at least in the 

short term, funding from the public sector should also be provided. 

Third, information sharing is key. Such sharing ranges from the 

mundane of my calling the city to find out why there are a number 

39

of police cars and fire trucks outside a particular building, to the 

absolute essential of having the city and state give us a heads-up 

about impending issues and announcements such as the August 1 

disclosure of terrorist threats against financial institutions on the 

east coast. Finally, not only can the above elements be replicated 

elsewhere, but also adapted to any region, even outside of financial 

centers where other sector participants may be necessary. 

I would like to mention briefly the crowning achievement of 

2004, a July tabletop exercise that proved successful in every way. 

Most importantly, we devised a scenario that examined how the 

partnership would function if financial institutions were forced to 

operate for an indefinite period of time under the threat of terrorist 

attack. Unfortunately, 2 weeks after the event, we saw that very 

scenario unfold in real life on the east coast that allowed us to be 

ahead of the game in Chicago. 

In conclusion, the members of ChicagoFIRST are very proud of 

our progress. While much remains to be done, Chicago’s financial 

community is better prepared to protect its employees and businesses than it was before ChicagoFIRST was formed. We hope that 

our successful approach can provide a model for private-public 

partnerships in other cities throughout the country. Thank you 

again for the opportunity to testify at this important hearing, and 

I am happy to answer any questions the committee may have. 

[The prepared statement of Brian S. Tishuk can be found on 

page 136 in the appendix.] 

Mrs. KELLY. Thank you, Mr. Tishuk. 

I would like to ask a couple of questions, but before I do three 

of the five members of this panel are from New York and participated in the recovery. I want to compliment all of you. You were 

back up. You were functioning. Our financial systems in New York 

were functioning so quickly. You are to be complimented for the 

work that you did prior to 9/11 to ensure that that actually happened. 

I would like to begin with asking a general question, actually, 

but I am going to focus this on you, Mr. Britz. The Stock Exchange 

has often been thought to be a target for terrorists. In the press, 

it was indicated that terrorists had cased the Exchange as a potential target. In a broad sense, what additional steps have you taken 

since you heard about people casing the place? 

Mr. BRITZ. First of all, I will share with you an anecdote, Congresswoman. When we met, I referenced in my remarks, we met 

with Homeland Security, we met with the FBI the evening before, 

the Saturday evening as a matter of fact, and the NYPD and a 

number of local law enforcement agencies. We asked them point 

blank, what can we do, what might we do that we are not now 

doing? The answer uniformly was, nothing; that they regard what 

we do today or what we did prior to the most recent announcement 

as the gold standard. 

They, in turn, again as I referenced in my remarks, the NYPD 

in particular supplemented their force on the ground around our 

perimeter both in terms of patrolmen, but also in terms of the Hercules swat team, if you will, so that we had a very substantial presence over and above what we normally have. I know you have seen 

40

what we normally have, so I think it is the gold standard. But post9/11, essentially what we did was push out our perimeter. 

We had well before 9/11 magnetometers, X-rayed every package, 

every valise. I myself walk through a magnetometer every morning. 

My briefcase goes through the X-ray every morning. But that, of 

course, is once you are inside the building. We pushed the perimeter out, as you know, with the help of the NYPD so that you cannot get within a block of the Stock Exchange with a vehicle without 

going through a checkpoint, having canine sniff, checking the manifest, having the dog sniff as to whether or not there is any explosive capability and so on. So essentially what we have done and 

what we have reinforced with the help of the police department is 

to extend that external perimeter away from the building. 

Mrs. KELLY. Thank you. 

I know there are a number of people who enjoy the fact that now 

there is a sense of a mall around the Stock Exchange. It certainly 

is pleasant to be able to walk without having to worry about the 

traffic down there. 

Mr. BRITZ. Those are the people who are not in vehicles. 

[Laughter.] 

Mrs. KELLY. Right. Exactly. 

Mr. Dolloff, you represent BITS. I asked a question of Mr. 

Liscouski in the earlier panel. I do not know if you were in the 

room. I am very concerned about the insider threat with regard to 

the programs that are in each one of the businesses that work in 

the financial industry. I am concerned about them because I understand that it is possible for people in the process of the programming and reprogramming to fit the niche market that each business needs, there are programmers who are there who are doing 

certain things. 

Is there something that you can tell me that the industry itself, 

from your BITS organization, the BITS FSR is doing, to perhaps 

profile the people who are doing programming, to do some kind of 

a check so that the programs do not yield up information that 

might be essential information to people that we actually would 

rather not have that information? 

Mr. DOLLOFF. Congresswoman, if I understand the question correctly, I would like to address it from the Huntington’s perspective 

first, because I am not sure of the organization efforts of BITS in 

this area. I can tell you that many financial institutions have programming standards and oversights over their programmers. One 

person may develop a program and it then goes through a testing 

process, and what we call a ‘‘change control’’ process where people 

outside the unit that did the program, review the program for its 

legitimacy and to make sure that it is doing as it is intended to 

do. 

Now, is it possible for somebody to be so clever that it could 

sneak by even that checkpoint? Probably. You can only protect 

against what you think you know. But I think that is a standard 

that you will find in most financial services industry shops, if you 

will, on how they control the quality of the programs that they develop. 

41

Mrs. KELLY. My concern is that so many of us look at a threat 

from outside, hackers, people like that. My concern is the threat 

from inside. 

Mr. DOLLOFF. I would agree with you. There is always a threat, 

both externally and internally. As I said, we need to make sure 

that we have these dual checks in place, and sometimes it is more 

than dual checking. They go through very extensive testing processes to make sure that the program development that has taken 

place does what it is intended to do. 

Mrs. KELLY. My time is up. I do have a few more questions, but 

I am going to turn this over now to Mr. Miller. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Madam Chair. 

I wanted to pursue a question that I began with the first panel 

about compliance in the private sector with the necessary safeguards against terrorism; that 85 percent of our infrastructure is 

in the private sector. There has been apparently a fair amount of 

effort to try to develop standards. 

Mr. Britz, you referred to the New York Stock Exchange’s standard as the gold standard, which I commend you for, but I am afraid 

that a great deal of the private sector will not adopt a gold standard, but a tarnished brass standard of going cheap on terrorism 

safeguards, when in fact they are at risk and there are consequences beyond. There are consequences to their employees. 

There are consequences to anybody else who may be on their premises. And there are consequences to the people that they do business with, in a ripple effect. 

The 9/11 Commission recommended a voluntary standard. Any of 

you, do you agree that it should be voluntary? Or should there be 

some force of law behind some standard in the private sector for 

terrorism safeguards? We can start with you, Mr. Britz, and work 

our way down. 

Mr. BRITZ. First of all, Congressman, when I referenced a gold 

standard, it was the New York City Police Department and the FBI 

referring to us, not us referring to ourselves. It was in the area of 

physical security. 

Mr. MILLER OF NORTH CAROLINA. Either way, I commend you. 

Mr. BRITZ. Gosh, I really do not feel confident to address that 

question other than to perhaps offer a private sector comment 

which would be that it is in the private sector’s interest to safeguard their respective franchises. I know that the New York Stock 

Exchange has done everything it has done, even though we are 

overseen by the Securities and Exchange Commission to be sure, 

and the word ‘‘cajole’’ was used earlier. They cajole us every now 

and again. 

But most, if not everything that we have done in the area of protecting our infrastructure has been self-initiated because it is in 

our business and our franchise interest to do that. So you have that 

kind of a motivator resident within every private sector business 

that has assets and franchises to safeguard. 

Beyond that, I am not a regulator of the banks or the paying 

agencies and so on, and I do not know if I would comment beyond 

that. 

Mr. MILLER OF NORTH CAROLINA. Anybody else? Try to keep it 

fairly brief because I only have 5 minutes. Yes, sir? 

42

Mr. MOHR. Yes, I would agree with most of what Mr. Britz said. 

I think it is in the interests of the private sector to make sure they 

are safe and sound. I would also point out that the regulators, in 

my opinion, did an excellent job following 9/11, leading the review 

on an industry-wide basis and coming up with a lot of good clear 

thinking, good clear direction. 

I think the partnership between the two was essential to making 

us as strong as we are today. I think the best way forward is to 

keep that partnership going, keep driving the two together to make 

sure that they are working together. 

Mr. MILLER OF NORTH CAROLINA. Anyone wish to speak up for 

something other than a volunteer standard? All right. 

A second point that the 9/11 Commission made, let me read one 

question, their bolded recommendation: ‘‘We believe that compliance with the standards should define the standard of care owed 

by a company to its employees and the public for legal purposes.’’

I took that to be a reference to the substantial body of state negligence law, of common law negligence of what the standard of care 

is, and that reference means that they believe that under state 

common law businesses that did not adopt the appropriate safeguards, and there are consequences to others as a result of their 

failures, should give rise to civil liability. 

There is also a wealth of economic theory that says that the civil 

liability system is a market mechanism to assure proper safeguards. Do you agree that the civil liability system would apply in 

cases, certainly now that we know there is a terrorism threat, to 

the consequences of a failure to take appropriate safeguards? Anybody want to stick up a hand? Mr. Britz, do you want to start with 

you? 

Mr. BRITZ. Congressman, I apologize. I do not feel confident to 

respond to that question. I am neither a lawyer nor an expert on 

what it is the Commission intended in those words. 

Mr. MILLER OF NORTH CAROLINA. Okay. 

Mr. Mohr, do you have any comment? 

Mr. MOHR. I have nothing to add to that. 

[Laughter.] 

Mr. MILLER OF NORTH CAROLINA. Mr. Dolloff? 

Mr. DOLLOFF. I would agree. I do not feel qualified to answer 

that question. 

Mr. MILLER OF NORTH CAROLINA. All right. 

Mr. Gaer? 

Mr. GAER. I would also agree. I am neither a lawyer nor an expert on what you are reading. 

Mr. MILLER OF NORTH CAROLINA. Mr. Tishuk? 

Mr. TISHUK. I am afraid it is not my area of expertise either. 

Mr. MILLER OF NORTH CAROLINA. Okay. I am pleased that I was 

able to bring about so much unanimity among the panel. 

[Laughter.] 

Mrs. KELLY. Thank you very much, Mr. Miller. 

Ms. Biggert. 

Mrs. BIGGERT. Thank you, Madam Chairman. 

I would like to congratulate all of the members of this panel for 

their self-initiated efforts to bolster the infrastructure of America’s 

financial sector, and to take the offensive approach in that. 

43

I would especially like to applaud you, Mr. Tishuk, not just because you live in Homer and are a constituent, but for what you 

have done with ChicagoFIRST in providing a model partnership between the public and private sector in this area. 

Could you just tell us a little bit more about the tabletop and 

what happened and why that is so important, and what you 

learned from it? 

Mr. TISHUK. Certainly. The tabletop took place in mid-July. We 

had terrific participation, some 17 government agencies, 21 financial institutions, telecommunications providers, power, water. It included all of the relevant areas of the city and the state, as well 

as the federal government. It was very useful. 

The whole object of the tabletop was to assess assumptions that 

we all had about one another, to make sure that we knew what we 

could really expect from one another during an emergency, rather 

than finding out something we did not expect in the heat of the moment. 

It certainly provided a lot of grist for our mill. Everybody has 

told us it was very successful, that they learned a lot about all the 

other participants. We certainly learned a lot. We learned our communications systems are even more fragile than we had initially 

thought, and we are working to find alternatives to the conference 

calls that we tend to rely upon. 

We are also reaching out to the counties surrounding Chicago, 

because our employees come from there and we certainly learned 

more about the city’s and state’s evacuation plans for getting folks 

out of the city, out of Cook County and beyond. Therefore, it is important to make sure that they are part of this dialogue so that our 

employees know what they can expect to find if such an event occurs. 

Perhaps most importantly, given its success, we learned that it 

is very much a goal for us to test, implement lessons learned to fill 

the gaps, and repeat, both in the table top format, which is somewhat artificial, as well as in a testing mode where you are in your 

office or where you are supposed to be normally, and then respond. 

Mrs. BIGGERT. It was mentioned earlier, or it was mentioned in 

your testimony that you have had trouble communicating with the 

Department of Homeland Security, while you have worked very 

closely with the Treasury Department. Do you think that that will 

change after today? 

Mr. TISHUK. I certainly have that expectation, yes. I would like 

to point out, though, that we have had excellent support and a relationship with DHS’s regional arms in Chicago. Both FEMA and 

the Secret Service have been with us every step of the way. They 

have been forthcoming with their ideas and very supportive to our 

suggestions. So from that standpoint, things could not be better. 

Mrs. BIGGERT. One of your suggestions has been that you would 

have a regional center for the Department of Homeland Security in 

Chicago. 

Mr. TISHUK. Correct. Chicago is a vital center. As the East Coast 

hardens for good reasons, we certainly want to make sure that terrorists do not look upon Chicago as a softer alternative to attacking 

financial institutions and metropolitan areas. 

Mrs. BIGGERT. Thank you for all that you do. 

44

I have another question for probably most of the people on the 

panel. After 9/11, a number of financial firms managed to shift 

trading and portfolio management to their offices in London and 

other financial capitals. Should major global financial institutions 

include in their disaster recovery plans the ability to shift trading 

and book management temporarily away from the affected country? 

Do some of you have that in your plan in case that there is a disaster? Mr. Britz? 

Mr. BRITZ. I will take a shot at that, Congresswoman. In our 

Rule 446, the business continuity rule, and I am now talking about 

broker-dealer member firms of the New York Stock Exchange, we 

impose a requirement that they demonstrate the ability to operate 

under various circumstances, but we do not dictate as to how. 

When you say ‘‘shift away’’ from the affected country, and this 

country is a fairly large country, that may very well include shifting to other centers that they may have literally around this country, as opposed to necessarily going to Europe or some other center. 

The NYSE as a regulator of broker-dealers dictates that you have 

to demonstrate the capability, but we do not dictate as to how. 

Mrs. BIGGERT. Mr. Mohr? 

Mr. MOHR. For the commercial banks, the regulators have already told the larger banks that they must have certain recovery 

capabilities that are outside the immediate region. That process is 

already under way, but there is no directive that they have to move 

offshore. Those banks that did move offshore did so because they 

are multinational banks that have processing centers in other 

areas of the world. 

Mrs. BIGGERT. Mr. Dolloff? 

Mr. DOLLOFF. I would agree with what Mr. Mohr just said. We 

have backup facilities outside our immediate region. We, however, 

are not an international or have an international presence, so we 

would not have that capability to go outside the United States, but 

we do have backup facilities. 

Mrs. BIGGERT. Mr. Gaer? 

Mr. GAER. Like everybody else on this panel, our business is intensely competitive. In an event such as 9/11, for example, let us 

call it a sister exchange of hours. We got a phone call from somebody across the pond to host their book, and that was their biggest 

fear, if you will, because they felt that once that liquidity goes offshore, it is going to stay there. 

As such, we do have a fully redundant trading facility where if 

we needed to move trading, we could move trading to that facility. 

We have two separate, fully redundant electronic trading systems 

that if the facilities are not available, we can use those facilities. 

We in the midst right now of looking at actually globalizing and 

providing a presence offshore as well. 

Mrs. BIGGERT. Thank you. 

Mr. Tishuk? 

Mr. TISHUK. You raise an important issue, but it falls outside the 

scope of our particular mission. 

Mrs. BIGGERT. Okay. Thank you. Thank you all. 

I yield back. 

Mrs. KELLY. Thank you, Ms. Biggert. 

45

One thing I did want to just mention, Mr. Gaer you said that you 

are dependent on the external infrastructures. I simply want to 

offer this committee’s help, if you have some ideas of things that 

we might be able to do. You can certainly call my staff. We would 

be very interested to do whatever we can for you, because I realize 

that you are in many ways affected by that more than some of the 

other people involved in financial services. 

Gentleman, I neglected to say as you sat down that without objection, your written statements will be made part of the record. 

You have been recognized for 5-minute summaries of your testimonies, but your testimony will be made a part of the record, your 

full testimony. 

The Chair notes that some members may have additional questions for this panel which they may wish to submit in writing. So 

without objection, the hearing record will remain open for 30 days 

for the members to submit written questions to these witnesses 

and to place their responses in the record. 

We thank you very much for your patience and for your testimony today. This hearing is adjourned. 

[Whereupon, at 1:15 p.m., the committee was adjourned.] 

(47)

A P P E N D I X

September 8, 2004

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