Senior Treasury Department officials said today that since the Sept. 11, 2001, terrorist attacks, the federal government has stepped up efforts to protect financial markets and the banking system, but they warned that a major attack could still cause disruptions.
"We know terrorists are trying to strike us as a world financial center, and in order to counter that we need to be able to demonstrate that the U.S. is a reliable place to engage in financial transactions," one Treasury official said, speaking on the condition that he not be named.
But the official said ensuring that financial institutions will be able to conduct business regardless of the nature of an attack is difficult because of the complexity of the systems that daily move trillions of dollars and execute millions of stock, bond and commodity trades.
"More work has to be done, but much work has been done," one Treasury official said. "Are we there in every aspect? No. Are we closer? Yes."
While offering few details, two Treasury officials told reporters that the department, in conjunction with other regulators and the private sector, had taken steps to protect key institutions and communications networks that are the backbone of the financial services industry.
A breakdown in telecommunications was a factor in the closing of the New York Stock Exchange and other exchanges for four days after the Sept. 11 attacks, according to the officials. In an effort to prevent that from happening again, key institutions would be given access in an emergency to a system that allows government personnel to enter a special code that will give priority to their telephone calls and other communications.
Federal agencies have also helped banks and exchanges determine whether they have sufficient backup systems, including alternate trading facilities and secure computer data storage, the officials said. Treasury has also offered to provide additional physical security to certain key institutions that request it.
The officials added that Treasury has developed several alternative lines of communication between the government and bond market participants to ensure that debt sales are not interrupted. After the Sept. 11 attacks, bond trading was halted for two days and the government postponed debt sales.
The bond market had a value of $20.2 trillion at the end of 2002, with government securities making up $3.2 trillion of that, according to the Bond Market Association. Federal, state and local governments rely on bond sales to fund operations and provide liquidity to the marketplace. Companies rely on bond sales to raise capital.
The Bond Market Association's president, Micah S. Green, said the group has made arrangements for a series of calls to be between major market participants in the event of another large attack. "I guess it will have to be tested, God forbid, before we know how it will work," Green said. But he added that a lot has been done to make sure things go smoothly.
Locally, a spokesman for T. Rowe Price Group Inc. said the Baltimore-based firm has several alternative ways of communicating with its trading desk on Wall Street if an attack knocks out phone lines, including e-mail and the Bloomberg financial information network. He also said the company has relationships with other firms outside Wall Street that could execute trades after an attack.
A spokeswoman for Legg Mason Inc., also based in Baltimore, said the company has a plan to protect client's financial information and maintain critical communication if an attack knocks out any of the firm's offices.
Outside experts generally give the government and banks and brokerages a mixed report card on their efforts to protect the financial system.
In a January report, the General Accounting Office criticized the industry for not developing detailed plans for protecting against cyber-attacks. Banks and brokerages are viewed as top targets for cyberterrorism because of the disruption attacks could cause in the economy and the amount of money terrorists might be able to steal.
Mark D. Rasch, a computer security consultant and former head of the Justice Department's computer crime unit, said the government was still not devoting enough resources to making sure the financial system is secure. "If foreign troops were running down Lexington Avenue in New York, no one would expect Citigroup to be responsible for defending itself," he said.