“Think you owe a lot of money? Last week, Bank of New York Co. was overdue on $100 billion owed to other banks and brokerage firms,” writes Paul Beckett in today’s Wall Street Journal.

“The bank, a low-profile, conservative institution founded by Alexander Hamilton in 1784, is a linchpin in the critical business of clearing securities trades and sending money between banks. Its financial systems were among the most severely disrupted in the Sept. 11 terrorist attacks in the U.S., including the one on the World Trade Center.”

“At some points last week, the bank had more than $100 billion in transfers backed up in its system, including $30 billion owed to each of Citigroup Inc. and J.P. Morgan Chase & Co., people familiar with the matter say. Making matters worse, senior Bank of New York executives sometimes reassured large corporate clients and regulators that its systems were back to normal, even while its processing computers were seriously backlogged with transactions.”

“Federal Reserve Board Chairman Alan Greenspan told Congress Thursday that the central bank had infused a record amount of money into the financial system following the terrorists attacks, in part because technical problems left many market participants “caught short.” He didn’t cite the Bank of New York specifically.”

“As a result, the U.S. got a disturbing demonstration of how dependent its financial system has become on a handful of big institutions that serve as the nerve system of banks and securities markets. Bank of New York, whose problems now are largely fixed, transfers money among more than 7,000 banks world-wide and processes at least 50% of all the government securities traded in the U.S.”

” ‘People don’t realize how vulnerable Wall Street is,’ said Vivek Wadhwa, chief executive of Relativity Technologies, a Carey, N.C., technology company.”

“The settlement industry has seen the departure of several large players that have sold off their processing systems in recent years to rivals like Bank of New York because it is a low-margin, high-volume business in which only the biggest participants make money. That consolidation also will make it harder for other banks to enter the business, meaning that without some major structuring of the industry, the U.S. financial system could remain vulnerable to catastrophic events in the future.”

“Bank of New York handles about 12% of funds transfers in the U.S. — or about $900 billion on a typical day — with the rest of the market divided between other big banks such as Citibank, Bank of America Corp., J.P. Morgan and Deutsche Bank AG. Bank of New York also clears, on an average day, as much as $1 trillion in government securities, a field in which the only other major player is J.P. Morgan.”

“Bank of New York’s funds-transfer business is based at 101 Barclay St., right next to World Trade Center rubble. Its government-securities clearing operation is located at the bank’s headquarters at 1 Wall St., close by the scene of last week’s attacks. The bank’s 8,300 employees in downtown Manhattan were evacuated to various locations in metropolitan New York. The bank said Thursday that one employee had died and two were missing.”

“As soon as the attacks occurred, the bank activated its disaster recovery plan. Its government-securities clearing backup site is in New Jersey, as is the backup data center for the funds-transfer business.”

“But the backup for the crucial connections at the money-transfer business on which Bank of New York’s clients rely and which access important interbank money-transfer systems such as Chips and Fed Wire, were located at 1 Wall St. That backup plan meets the regulatory and legal requirements because the locations are in different power grids and telecommunications switching systems and bank Chairman Thomas Renyi said there is no way the bank could have foreseen such an incident.”