Evidence of Australian Bank Exposures to Operational Disaster

The loss of a bank's critical business operations due to a physical, technical or natural disaster may have a catastrophic effect on the ultimate survival of the institution and may even threaten the overall stability of the financial system. This paper reports and analyses the results of an extensive survey of the disaster recovery planning practices of Australian banks. Banks are grouped as major, regional and foreign banks. Data analysis considers specific organisational disaster recovery planning issues within broad categories of organisational commitment; development and maintenance of formal planning and response processes; and Reserve Bank regulatory requirements. Results clearly demonstrate that Australian banks, as a group, have not fully implemented disaster recovery planning within their organisations, and are generally only in the formative stages of the process. The paper concludes that banks are not adequately prepared to respond to, or recover from, a significant event that may impact upon the provision of critical business functions. Given the importance of the banking sector, particularly the major banks, to the stability of the Australian financial system, it is further concluded that there is a substantial level of associated systemic risk.