Officials say financial system normal despite attack threats

Martin Crutsinger

Monday, Aug. 2, 2004 | 10:58 a.m.

WASHINGTON -- Treasury Secretary John Snow, attempting to bolster confidence on Wall Street and Main Street amid a new warning about possible terrorist strikes, said today the nation's financial system continues to operate normally, a testimony to its "resiliency and strength."

Snow, in a statement, also said there are sufficient safety mechanisms to ensure that any terrorist attack on the U.S. financial system can be weathered in much the same way the system handles hurricanes and other disruptions.

Millions of dollars have been spent to develop redundant systems that could take over after a terrorist attack to make sure that bank customers are able to continue to cash checks, make deposits and withdraw money from automatic teller machines.

Many of those systems have been put in place since the Sept. 11, 2001, attacks in the heart of the financial district in New York City.

U.S. stocks fell this morning on the attack threats. Shares of Prudential Financial Inc., whose building was identified as one of the targets, declined. Losses in benchmark indexes were limited as oil prices retreated from a record high and investors become accustomed to threats of terrorism, with share prices already reflecting the concerns, traders said.

"We get these alerts all the time, and people are going to get more and more used to them," said Lance Zipper, senior trader at Zinc Capital Management in New York. "It becomes less and less of a factor."

The Standard & Poor's 500 Index shed 1.22, or 0.1 percent, to 1100.50 as of 12:44 p.m. in New York. The Dow Jones Industrial Average Index slipped 1.40 to 10,138.31. The Nasdaq Composite Index lost 11.59, or 0.6 percent, to 1875.77.

Today, four stocks fell for every three that rose on the New York Stock Exchange. Some 587.2 million shares changed hands on the Big Board, 13 percent less than the same time a week ago.

Snow said that the Treasury Department, which has not been listed as a specific target in the latest terrorist threat warning Sunday, is working closely with the Department of Homeland Security and federal, state and local financial regulators, among others, to make sure the nation's financial system would be able to withstand any attack and to "quickly respond to any potential market disruptions."

"Our nation's financial markets, financial institutions and financial sector continue to operate normally," Snow said today, on the first business day following the new threat.

"I applaud the financial services industry for remaining open for business in the face of yesterday's reporting," Snow said. "The extraordinary commitment of the men and women who make our financial systems work is invaluable; their work demonstrates the resiliency and strength of our financial system," he said.

Federal Reserve Chairman Alan Greenspan told Congress recently that his agency, which oversees the country's biggest banks, continues to upgrade systems to deal with the "fortunately low but still deeply disturbing possibility" of a new terrorist attack.

Those upgrades were getting extra scrutiny following the government's warning Sunday about possible al-Qaida terrorist attacks against financial institutions in New York City, Washington and Newark N.J.

The facilities listed included the New York Stock Exchange and financial giant Citigroup Inc., in New York, Prudential Financial Inc., in Newark and the headquarters of the 184-nation International Monetary Fund and the World Bank in Washington.

The list of potential targets did not include the Federal Reserve in Washington, the nation's central bank and lynchpin of the financial system, or the Bureau of Engraving and Printing, supplier of the nation's paper currency.

But police officials said extra security was being provided to those two institutions as well as the IMF and World Bank.

Officials at all of the financial institutions stressed they believed they had sufficiently strengthened systems to guard against major disruptions to critical operations.

Those moves have included improving communications systems connecting major financial institutions and conducting numerous drills to test backup systems in the event of a terrorist attack.

Federal Reserve officials noted that during the power blackout in August 2003 that affected more than 50 million people, the nation's financial system was able to keep operating, just as it did when Hurricane Isabel hit the East Coast later that year.

They credited the backup systems put in place after 2001 and the upgraded computer systems that were installed at a cost of millions of dollars to deal with the Year-2000 date switchover.

The Fed has refined the procedures it used after the Sept. 11 attacks to monitor payment flows between banks and, if necessary, flood the financial system with money to make sure that temporary disruptions in those flows don't cascade into serious problems.

Bloomberg News

contributed to this report.