Who would have anticipated that credit unions as far away as Anchorage, Alaska, and Chicago, Illinois would be directly affected by a Gulf Coast hurricane. Yet in the days following the hurricane, many credit unions far removed from the hurricane found themselves struggling to meet the needs of their members living in the area impacted by the storm.
According to Sara Canepa Bang, chief executive officer of Financial Service Center Cooperative, the hurricane impacted credit unions throughout the U.S. Although FSCC does not have any Louisiana-based credit union customers, over 55,000 members affiliated with FSCC’s shared branching network were affected by the hurricane.
Credit unions today are more inter-connected and inter-dependent than ever before. Events such as a hurricane, earthquake, or power outage in one region can adversely affect credit unions elsewhere given the dispersion of members and the inter-connected nature of technology.
Hurricanes Katrina and Rita stress-tested many organization’s disaster recovery plans. Credit unions are no exception. As the waters recede and the rebuilding begins, it is important for credit unions everywhere to seize this opportunity to reevaluate the disaster recovery plans and ensure that future risks can be managed effectively.
Disaster Recovery Planning Begins Before The Disaster
Disasters are unpredictable, but the effects of a disaster on a credit union’s operations can be estimated and planned for well before it strikes.
According to Jeff Hendrickson, chief executive officer of DOW Louisiana Federal Credit Union ($116 million, Baton Rouge, LA), DLFCU had a well-designed disaster recovery plan in place prior to Hurricane Katrina. Since Katrina could be anticipated days in advance, Hendrickson and his team were able to execute their plans which included notifying their key vendors, establishing hotlines, migrating important information to laptop computers, and safely housing important documents.
While the devastation wreaked by Katrina pushed DLFCU’s disaster recovery plan to the limit, it withstood the test well. Credit union staff—many personally affected by the hurricane—understood their roles, and the primary contingencies related to the data processing, website hosting, and the 800 hotline number proved successful.
Lessons Learned For All
There are a number of lessons that can be learned from Katrina that are relevant to credit unions as they reevaluate their disaster recovery plans. Communications, for example, proved a significant challenge for credit unions affected by Katrina. When the telecommunications lines went down, credit unions with dedicated lines could not communicate with their members or vendors. According to Hendrickson, DLFCU is now considering ways to migrate certain key processes over to the Internet. A key benefit of the Internet is the open network; should one pathway fail, communications can be rerouted through other routes
Liquidity also proved a challenge. “Everything reverts back to a cash basis environment” when the technology and communication lines fail, says Hendrickson. It took an improvised and heroic airlift of money, piloted by Texas DOW Credit Union CEO Ed Speed, to provide DLFCU with some much needed cash in the immediate aftermath of Katrina ( click here to read about the airlift). Going forward, Hendrickson says the credit union will manage its liquidity more conservatively in the days leading up to the next hurricane announcement.
In addition to communications and liquidity challenges, credit unions located in the Gulf region encountered a variety of other problems such as servicing members and security. Their experiences and the lessons learned are relevant to all credit unions; not only those in areas prone to natural disasters such as earthquakes or tornados, but also those credit unions located far from the disasters that may have to provide remote services to affected members.