Banks Confront Telephone Failures

New York City Outages Increase Interest in Safeguards

Recent telecommunications network breakdowns are forcing the financial industry to become more adept at handling such crises, but bankers complain the price of such vigilance is still high.

An outage of American Telephone and Telegraph Co.'s long distance lines in New York on Sept. 17 brought down the region's air traffic control systems and stranded airline passengers across the country. The foulup also disrupted the New York Federal Reserve Bank's Fed Wire funds transfer links to Philadelphia and Chicago.

Despite the problems, the banking system emerged relatively unscathed. Although millions of dollars of Fed Wire payments were held up in the pipeline for several hours, the central bank, without fanfare, moved its operations to a backup site, settling only an hour later than usual.

Pressure on New York

But industry leaders such as John F. Lee, president of the New York Clearing House Association, have repeatedly called for better protection for the city's financial networks, which transfer trillions of dollars daily.

Problems that have afflicted New York -- most notably, a telephone cable cut in January and the weeklong Consolidated Edison power outage last summer -- have spurred some banks to consider moving their back offices out of the city. These problems have also put enormous pressure on the administration of New York City's mayor, David Dinkins, to try to retain these businesses.

Typically, large banks and organizations such as the New York Clearing House Association and the Securities Industry Association are well protected from network failures. They already use the services of multiple telecommunications vendors -- there are 14 network providers in the area -- to guard against disruptions.

A Solution for Some

"In New York, you have the opportunity to pay for diverse routing to get to the long distance carrier," said one money-center banker, who requested anonymity. "That can be expensive, but it's worth it."

But for smaller banks and firms, the cost of ensuring diversity can be prohibitive. Spooked AT&T customers may, instead, turn to rivals MCI Communications Corp., based in Washington, and US Sprint, a subsidiary of Sprint Corp., based in Kansas City.

In today's complex and interconnected networks, however, simply switching carriers is not enough. US Sprint president William Esrey acknowledged publicly recently that Sprint cannot take on all of AT&T's traffic if that provider, which carries some 70% of all long-distance traffic, has an outage.

Agencies such as the New York City Department of Telecommunications and Energy have been working for several years in tandem with banks and other large corporations to improve the reliability of the city's telecommunications and electrical networks.

One of the proposals is a plan for a "mutual aid and restoration" agreement in which all 14 telecommunications vendors serving the metropolitan area would take on traffic from rival telecommunications companies in the event of an outage. Telecommunications providers in California have agreed to a similar arrangement, in which companies will provide fiber optic cable capacity and technical support.

Before the latest outage, 13 carriers -- including New York Telephone, Metropolitan Fiber Systems, Teleport, US Sprint, and MCI Communications Corp. -- had agreed to work out an agreement. AT&T, citing competitive reasons, was the only holdout. But late last month, after an angry appeal by Mayor Dinkins, the vendor agreed to come to the table.

Details of the agreement still must be worked out. Telecommunications networks are subject to a variety of problems, including switch failures, software glitches, and accidental cable cuts. The intent of the discussions is to provide for all these events.

"We're looking at problems across the board. To the degree possible, we want to create a disaster-proof network," said Thomas J. Dunleavy, assistant commissioner for telecommunications policy for New York City's telecommunications agency. "We would hope something would be in place within a year."

AT&T officials said the company plans to announce new services by the end of the year that will make it less expensive for institutions to back up their networks.

And over the past eight months, New York Telephone has unveiled services that give customers the ability to route calls to either of two central offices.

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