California's financial community recently has been gearing for the catastrophic earthquake that has long been predicted in that state. The focus of concern has been a ``worst-possible scenario'' worked out by a National Security Council ad hoc committee. It indicates that the economic impact of such a California quake would be on the magnitude of the Civil War.
Geologists say there is a better than 50 percent chance that the big California quake will occur within the next three decades.
Various estimates of damages range between $30 billion and $200 billion, depending on the time of day and location of the temblor.
Even at the low end of the scale, planners expect an economic ``ripple effect'' will be felt well beyond state boundaries, since California accounts for about 12 percent of the nation's economy and serves as host for the majority of its high-technology industries and military contractors.
``Trading on the New York Stock Exchange would be suspended; we don't know how long,'' speculates Dave Harris, vice-president of Emerging Technology, a division of First Interstate Services Company. ``London, Tokyo, and Paris would go into some sort of lethargic state. Import-export would be suspended. The whole economy of the world just sort of waits.''
Recovery from the famed San Francisco earthquake of 1906 was facilitated by legendary financiers like A. P. Gianni, founder of the Bank of America, who set up business on the sidewalk and started lending money for rebuilding almost as soon as the rubble settled.
``But all he had to do was load his cash into his wagon and get it out of the quake area, then move it back in,'' observes Cheryl Helsing, vice-president in charge of preparedness and information security for Bank of America, which has since become California's largest banking chain. ``It's not quite so simple today.''
The difference is that money has become electronic, much of it moved by automatic tellers, wire transfers, and satellite transmissions. The California Bankers Clearing House, which represents only seven banking chains, processes $3.5 billion in checks daily -- tallied by computer.
A loss of data-processing capabilities for three days in either San Francisco or Los Angeles could significantly damage the state's economy. A five-day hiatus would severely affect the national economy, and after seven days repercussions would be international, according to a California Banker Association report. Reconstructing financial transactions would take weeks or even months and could ultimately mean failure for a number of the banking facilities involved.
The United States Comptroller of the Currency requires all national banks to have a disaster plan, and in 1981 the California Bankers Association established an emergency preparedness task force for all of its members.
``The major banks have given a great deal of effort, time, and money in putting together their programs,'' reports Dale Hatfield of the Bank of California. Mr. Hatfield, who was chairman of the task force when it did its basic planning, says: ``Our objectives have been to develop a program which by and large takes in the worst type of scenario. We're into the detailed planning now for airlines that will move our checks, staging points, etc.''
Implementation of these plans falls to the Earthquake Recovery Task Force of the Bankers Clearing House, which has sponsored research on the protection of computers and data systems. Its most recent precaution is installation of an emergency radio network in Los Angeles that will ultimately be replicated in San Francisco and linked statewide. ``The thrust of our plan is the premise that Los Angeles and San Francisco will not be devastated in the same quake,'' explains Gerard Milano, executive director for the agency. ``We believe our major banks can recover by relocating the major operations at the opposite end of the state.''
Consistent with this thinking, First Interstate Bank stores 400 to 500 magnetic backup tapes of its transactions in an alternative location every 24 hours and has gone so far as to rehearse moving its Los Angeles banking operations to a ``safe'' center as it would if disaster struck. Other large chains are taking similar precautions, and the banker's association has also worked closely with smaller institutions.
``We believe that banking as a whole is really in the forefront of earthquake planning,'' declares John Gruenstein, vice-president for public relations at the Federal Reserve Bank of San Francisco. Others within the private sector have also taken elaborate precautions.
``Four years ago Mayor [Tom] Bradley invited representatives of major corporations to Parker Center and told us that, although Los Angeles was one of the most prepared cities in the whole world for earthquake, it wouldn't be able to assist businesses for 72 hours,'' recounts Larry Ehrmann who heads the Business and Industry Council for Emergency Planning and Preparedness, founded at Mayor Bradley's suggestion. Today his organization boasts from 600 to 700 members who work closely with government disaster agencies.
Also in the forefront is John P. McCann of the Insurance Information Institute, who wrote ``Prepare for an Earthquake; A Business Guide'' for his industry.
``It's really society's problem,'' Mr. McCann says. ``How does society want to pay for damage following a major earthquake? . . . It's the business community that offers the best hope for us. To take the right steps, business should look at a catastrophic earthquake as an opportunity to be of greater service, make more money, maybe even expand.''