California May Curb Mutual Recovery Pacts

State Officials Said to Doubt that Disaster Arrangements Are Adequate

A fire that gutted the headquarters and data center of a California community bank may spur state regulators to limit the use of arrangements under which banks agree to assist each other in case of disasters.

The $160 million-asset Bank of the Sierra, in Porterville, Calif., lost $3 million to $4 million in the blaze, including its data center. But due to a major recovery effort orchestrated by three vendors, the bank was back up and running within five days.

The fire broke out in the early morning hours of Oct. 2, beginning on the roof of corporate headquarters, where a worker left a small propane torch burning. The roof was being renovated as part of a $500,000, nine-month remodeling job that was near completion.

Possible Weak Side of Reciprocal Agreements

Until a year ago, Bank of the Sierra had a mutual disaster-recovery agreement with another bank.

"We decided that wasn't adequate," said Margie L. Mathis, director of marketing for the bank. "If you lose more than four hours' computer time, they're not going to be able to help you, because they'll need the time themselves."

State banking officials "indicated to me that a reciprocal agreement couldn't stand up in this situation, and they were considering changing the requirements," said Gary Farnum, president of disaster recovery vendor Bank Up Business Recovery Services, based in San Ramon, Calif. Mr. Farnum worked with the bank at the site.

Not only the corporate offices but the data center including a $150,000 computer from Data General Corp. and a $250,000 check-processing operation, were destroyed. Records of bank transactions made on Oct. 1 were also damaged. "When you walked into the room you didn't know if you were looking at a reader/sorter or a wastebasket," Mr. Farnum said.

In an unusual cooperative effort, a team of vendors worked together closely to get the bank up and running. Bank Up took over check processing for the bank, flying items from the bank to its offices, and processing about 30,000 checks a day.

Sophisticated Vendor Solutions

Software Alliance, Berkeley, Calif., which provided the software for Bank of the Sierra's retail banking system, rewrote it so that the computer would accept work out of sequence. Clerks were able to post transactions for Oct. 7 while recovering Oct. 1.

The software vendor provided source code to another vendor, Data Assurance, in Englewood, Colo., which ran the bank's retail branch operations remotely -- including automated teller machine networks -- and posted the check-processing transactions.

And bank employees worked on rebuilding the lost day's work. "We searched through the rubble and found 68 tapes," Ms. Mathis said. Burned documents and melted tapes were freeze-dried and sent away for restoration.

Other transactions were reconstructed through the Federal Reserve Bank's records. Still others are being rebuilt with the help of customers, who are coming forward with deposit tickets.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.