For the past few months, teams of people in the world's banks and insurance companies have been working hard to make sure they are prepared for the possibility of a widespread outbreak of avian flu.

These institutions hope they will never have to activate their plans, which are detailed and extensive. Even so, urged on by regulators and organisations such as the World Health Organisation, they are trying to make sure they are prepared to deal with an outbreak that could affect a significant proportion of their employees and will test their ability to manage their business when staff are unable to travel and, in some cases, staying away from the office.

These preparations are not necessarily different to other industries. But, given the importance of the financial system to the overall functioning of the economy, governments and regulators are taking a close interest in banks and insurers.

Financial institutions have plenty of practice in disaster planning. Following the attacks on New York in September 2001, most large banks have adopted detailed contingency plans, while regulators have set up procedures for monitoring the markets in the event of another attack.

What's more, banks can also draw on the lessons they learned during the outbreak of severe acute respiratory syndrome in Asia several years ago. However, there are differences. Because Sars was transmitted by close contact between people, banks could respond by splitting staff between buildings. It would be harder to stop flu from spreading. "Pandemic flu is going to be in the open environment and we're all susceptible to contracting it in one form or another," says Bob Piggott, head of group crisis management at HSBC, the world's third-largest bank.

On a practical level, financial institutions are being forced to consider the possibility of large numbers of staff falling ill. "If there were a pandemic firms would need to take into account being without 10 per cent of their staff over a period of three months," says a spokesman for the UK's Financial Services Authority.

One lesson from Sars is to encourage employees to keep clean, and to improve hygiene in offices in order to limit the spread of the disease. Among others, Citigroup, the world's largest bank, has already improved disinfecting regimes.

In the event of an outbreak, banks are also preparing to limit the contact staff have with others, possibly by allowing them to work from home.

Investment banks such as Goldman Sachs and Morgan Stanley are even exploring with regulators the possibility of traders working from home.

Another question banks face is whether to start vaccinating employees and their families. Some reports have suggested banks are stockpiling vaccines, but most institutions say they have not done so, although they may be considering it.

"It is better for national governments to co-ordinate this and to make sure that supplies go to the people that really need it," says a spokesman for Standard Chartered, the emerging markets bank.

But financial institutions must also consider the broader impact of an outbreak of flu on the economy. Banks would have to consider how they should respond if particular sectors of the economy, such as airlines or hotel operators, got into financial difficulty. Regulators are also monitoring the insurance industry's ability to absorb a large increase in health or life insurance claims.

Banks are also planning for increased cash withdrawals, and for the possibility that there may be a sudden increase in phone and internet banking if more people stay at home. Indeed, during a recent meeting at the FSA, Britain's largest banks discussed their ability to handle a sudden increase in electronic banking volumes.

These plans are still at the theoretical stage, and most will not be activated unless there is evidence of sustained transmission of the flu virus between humans.

Even then, the response will be restricted to particular countries and their immediate neighbours unless outbreak spreads to two or more regions of the world.

Banks and regulators are still hopeful they will never have to put their plans into action. Even so, Mr Piggott is quick to warn of the dangers of complacency. "We believe at some point we are probably going to be faced with this," he says.