"Banks have a month to prepare before this virus starts starts behaving like an epidemic"
2020 is turning out to be the year of the black swan. First the assassination of General Soleimani; now the coronavirus. In the short term at least, it's the virus that should be absorbing banks' attention.
"There hasn't been an infectious disease crisis of this magnitude for over a century," says Gordon Wu, a Cambridge University and MIT mathematician employed as a 'catastrophist' at Risk Management Solutions, which provides risk models for the insurance industry. "There should be about a month to go before this becomes an epidemic in Britain. It would be prudent for banks and other organizations to put in place preparedness plans to deal with the situation now."
As we reported earlier, banks in Singapore and Hong Kong are already activating contingency plans and encouraging employees to work from home or across different sites. In London and New York, however, although pandemic preparedness plans exist it's been many years since they were given much of an airing.
"I have stockpiled Tamiflu for organizations in the past," says Michael Faber, a business continuity specialist in the financial services sector, "but I don't have it now, and I haven't heard of other organizations having it either." Faber says he has pandemic plans ready to go, but that a pandemic wasn't high on the financial services industry's list of likely events in 2020: "Other priorities come into play, that's life."
To be precise, it's over a decade since banks in London and New York seriously contemplated how they would deal with a pandemic illness. In the U.S., the FBIIC, FSSCC, SIFMA, and U.S. Department of the Treasury ran a three week 'severe pandemic global flu' exercise in 2007. In the UK, the Bank of England, Treasury and FSA ran something similar in 2008. Both were stimulated by the then-spread of H5N1 ('bird flu'), and looked at how banks would operate under employee absence rates of up to 40%. Both now look a little out of date - the UK's document is full of dead links to sites that no longer exist and the U.S. document makes reference to open outcry trading floors. Over a decade later, much has changed.
Even so, the two reports have some helpful insights for banks today. The U.S. report notes that pandemic planning is more difficult than other kinds of continuity planning: "A pandemic will be widely dispersed and affect multiple locations; may last several months and occur in waves; may cause extensive and protracted absenteeism; and may stress interdependencies among sectors." In 2007, only 45% of the large banks participating in the U.S. simulation had specific pandemic contingency plans. Most banks in the U.S. exercise said they would ask employees to work from home, request leniency from regulators, and potentially pursue a coordinated reduction in trading hours. The U.S. report suggested banks stockpile anti-viral medications, "as they may reduce morbidity and mortality. and because they may diminish the overwhelming demands that will be placed on the healthcare system by a pandemic."
In the UK, a document titled 'Financial Sector Pandemic Flu Planning' from 2006 references a 'Financial Sector Discussion Group on Pandemics,' and the Securities Industry Business Continuity Management Group (SIBCMG). The former no longer seems to be exist, but the latter is currently led by Nic Devine, the head of operatonal resilience and Deutsche Bank. Devine didn't respond to a request to comment for this article. Nor did the Bank of England, which now manages financial sector continuity in the UK.
Wu says the situation on the Diamond Princess Cruise Ship, where 135 of 3,500 people on board currently have the virus, is a warning of what can happen if the illness takes hold within an organization. In another report on pandemic flu in the finance sector from 2006, the Financial Stability Forum cautioned against a situation where, 'a few cases of flu in a central business district could lead to quarantining of the entire staff of the building where a financial institution is located, accompanied by quarantining of the affected office space and equipment, for a period of several days.'
One issue in both the U.K. and the U.S. may be a lack of masks. While the U.K. holds a mask stockpile for emergency workers, employers are expected to provide employees with masks themselves. However, Faber says he is not preparing masks for employees in London: "Our Hong Kong office has run out, so we are supplying them from our offices in other countries." There are two schools of thought with regards to masks anyway, he says: "A mask can make things worse because the infection can stay on the mask and increase the likelihood of infection."
Although Faber says he is revisiting his pandemic plans, he cautions against panic. "The coronavirus is contagious, but the fatality rate is low," he says. "The most likely precautions will involve travel restrictions, quarantine for sick staff, office hygiene and scenario planning for someone becomes ill in the office," adds Faber. "People will want to agree options for split working between the main office, recovery site and home."
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