In an era where money is magnetic ink, even the rich of New Orleans may not be safe.

A friend forwarded an American Banker feature (all content is behind their firewall, only the headlines are in front) that explains all this.

The story, by Steve Bills, details the problems banks had in the impacted area, and as many as five banks were still out of action as of Tuesday.

Those banks hurt worst were small community banks that did not outsource their financial processing.

Customers of those banks who managed to escape may be unable to get to their money, although they may not all know that because financial networks do have a limited ability to "stand-in" for their absent customers.

This could happen again-and-again, because only 40% of small banks out-source. Would out-sourcing solve the problem? Not necessarily. One of the bigger outsourcers, Fiserv, has operations in New Orleans (fortunately they're based in Wisconsin) and eight employees are still missing.

Given all this there are some basic things that need to be required:

1. Every bank must have a disaster recovery plan so that an outfit like Centurion Disaster Recovery can take over from them in an emergency.
   
2. The banking system must have tighter technical links so that all records can be protected before a hurricane hits a metro area.

The banking system is a network, not just a bunch of processing islands. But there are still small atolls that have been unable to get to the 21st century. They need to be required to either get with the program or go out of business.

When a customer puts their money into an American bank, they should be assured they're putting it into a system that will protect them. We have deposit insurance. We need technical insurance as well.