Analysts Reassured by Resilience of Financial Services' IT

Despite the devastating loss of life in the September 11 attack on America, technology helped the financial services industry weather the storm intact. "It's very hard to find anything that did not work," says Damon Kovelsky, an analyst at Meridian Research, Newton, Mass. "The backups, the redundancies - all that worked. It worked like a charm."

Although bandwidth shortages in the downtown areas led to some difficulty settling trades, the trades didn't fail. "They just had a hard time getting into BoNY's (Bank of New York) settlement systems," says Kovelsky. "They were going in in batches - so it would be quite for a while and then all of a sudden there'd be this huge batch of settlement data and it would just start chugging away."

The attack also provided a wake-up call to the rest of the industry as to the importance of adequate backup facilities. "Insuring complete redundancy of your data is not something that can be done on the cheap," says Kovelsky. "It can be expensive, especially when you don't have economies of scale."

But nor can data backup and security be ignored. "Don't underestimate how important it is," says Kovelsky. "If you never use it, you're lucky."

Information systems were also flexible enough to handle the halt in trading across the entire market. Even with an unprecedented 4-day halt in trading, the market deftly handled the absence of information--much like it would if a quickly-declining stock market triggered a halt in trading. "They are designed to deal with circuit breakers because it's a fact of life ever since the '87 crash," says Kovelsky.

There are still some nuts-and-bolts issues when it comes to dealing with risk management systems that expect a certain number of trading days per year. "There will be a lot of work that'll have to be done along those lines," says Randi Purchia, an analyst with AMR Research, Boston, Mass. "But in the immediate to short term you're going to see people using the old expert information system that resides in experienced senior management."

But for the most part, institutions systems are intact. "The foundation of data was secure, and disaster recovery plans had worked even for one institution, which in particular, had been pretty badly hit," said Purchia. "All their systems were up and running, which was remarkable given who they were." She declined to name the firm.

"This is a psychological blow more than anything else," said Purchia. "It doesn't have too much to do with the fundamentals of the U.S. or the economy."