Academic journal article ABA Banking Journal

Don't Take Phone Service for Granted

Academic journal article ABA Banking Journal

Don't Take Phone Service for Granted

Article excerpt

Look at the telephone on your desk and, if you're a relatively modern CEO, the data terminal elsewhere in your office.

Do you know what would put them out of commission? Do you know what you'd have to do to restore service?

Consider the experience of First Charlotte Bank & Trust Co. When Hurricane Hugo struck Charlotte, N.C., the $165 million assets bank discovered how many factors go into even a small financial institution's telephone setup.

Hugo arrives. "Telephone service is the lifeblood of a bank," says Dan Pilley, First Charlotte's chief financial officer and a senior vice-president.

On the Thursday that Hugo hit, phone service through most of the city cut out because electrical service failed, Pilley recalls. Even when the local phone company hooked up generators to certain central switching offices, it didn't do much good. Pilley says too many phone lines had been knocked down.

The bank took several steps to recover. It dispatched cars with cellular phones, as well as battery-powered portable units, to its four branches. This helped establish basic communications.

First Charlotte also brought in a backup generator of its own, purchased from a friend of a friend of Pilley's from an unaffected part of North Carolina. "You couldn't have acquired a generator in town if you wanted to," he recalls.

The generator was necessary to run the headquarters private branch exchange until power was restored to that part of the city. Unlike Centrex-type service, which relies on the phone company for switching and which operates so long as the phone company has power, "PBXs" and key" multiline phone systems require power at the bank's site. In such cases, if you have no electricity, you have no phones.

In retrospect, Pilley says, the bank had its bases covered with its contingency plan, but it hadn't counted on losing all utilities as it did. The generator has since been installed as a permanent backup.

Be prepared. As dramatic as a hurricane is, telephone outages can arise from many causes, some of them even more devastating.

To a degree, banks are victims of both the rapidly growing complexity of telecommunications technology and their increasing dependence on it.

Bank systems and functions that can be affected by a telephone outage are numerous, observes Geoffrey Wold, national director of consulting services for financial institutions at McGladrey & Pullen, St. Paul, Minn., an accounting and disaster recovery firm. He gives a partial listing: wire transfers, automated clearing house transactions, automated teller machine transactions and inquiries, remote processing, and teller terminals located in branches but connected to an off-site host computer.

Then of course there are the numerous bank functions that rely on voice connections.

To explore the matter and to find practical solutions, ABA Banking Journal spoke with bankers who lived and worked through Hurricane Hugo; last October's earthquake in northern California; and the May 1988 Illinois Bell fire that knocked out a central switching office in Hinsdale, Ill. ABA BJ also spoke with consultants and equipment and services vendors about possible risks and solutions. In addition, this article draws on presentations made at ABA's 1990 National Security and Risk Management Conference and its National Telecommunications Conference.

THE INSIDE STORY

Today's phone system is incredibly complex. Trouble can arise virtually anywhere between point A and point B.

A good dividing line that serves to break the issues into manageable pieces is the local telephone company's central switching office. Typically a voice call or a data transmission that uses earthbound lines run by traditional carriers must make it to that central office before it can go further.

The last mile. There are numerous alternative routes a local or long-distance company may use to usher a call or transmission along. …

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