Good news re:Banking, for the pollys/DUHnialists-or is it? Read carefully and decide.
<< FED/BIS Official Gives Us Good News on Y2K and Banking. Good News. Really Good. Terrific. OK.
usia.gov.
Dr. Roger Ferguson is a member of the Federal Reserve Board. He also heads the Joint Y2K Committee of the Bank for International Settlements. On Y2K, he is the banking world's big kahuna.
He speaks of his own "emerging confidence." I have been reading his reports for a year. I do not recall any period of public pessimism on his part.
He says the Federal Reserve's mission-critical systems are 100% compliant. Great! Now, what about the 316,682 computers the FED's computers interface?
He says that emerging markets still have y2k problems. Indeed, they do, especially if you define an emerging market as Japan, Germany, France, Italy, Spain, Greece, Turkey, and everything south of Texas.
We learn the following:
The Federal Deposit Insurance Corporation (FDIC) reported last month that 98.3 percent of insured institutions were ready.
Odd; I am unable to find such a statement on the FDIC's Website. Here is what I found in its June 3 posting:
At present, more than 98 percent of insured institutions are rated "satisfactory" in regard to Y2K preparations.
He seems to be suffering from the same problem that the L.A. Times reporter is: y2k dislexia.
So, if the code is OK, what's the problem? Why, public confidence. But things will be just fine. Americans are trusting people. There will be no huge bank run, which is why the FED has printed up so much currency -- plenty; more than plenty; billions and billions:
This inventory will be more than enough to meet any conceivable demand for cash. Given the high expectation that all normal payments methods will work, we do not expect that there will be any unusual demand for cash, but if there is, we will be ready to meet it.
I like that phrase, "any concerivable demand." It reminds of the Wallace Shawn character in The Princess Bride. He is a kidnapper. He and his crew are being pursued by someone who keeps getting closer. Shawn keeps devising new plans for evasion. They don't work. Every time the pursuer gets closer. And every time, Shawn says, "Inconceivable."
He calls on bankers in less developed countries to be truthful and reveal everything. That's what he said. I can see the headlines:
Central Bankers in 170 Countries Say, "The System Is Not Compliant, and There Is No Way We Can Get Compliant By January."
Anyway, what people need is reasonable and responsible reporting, because nobody knows what's going to happen next year.
We should all recognize that the Year 2000 event is unique in that we all know that it will occur, but exactly what will occur is uncertain. In this environment, we should listen to the most reasonable and responsible sources.
Wat is reaasonable and responsible reporting? I suppose it's reporting that doesn't go around bringing up the FED's 316,682 data excanges.
This was published by the USIS (July 29), which is the part of foreign information arm of the United States Informatio Agency.
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Text: U.S. Financial Systems Are Ready for Y2K (Emerging Markets may have some problems) (2970)
The Federal Reserve System is ready to meet the challenges that the Year 2000 (Y2K) computer bug may present to the banking sector, says a U.S. central bank governor.
"My emerging confidence results from the fact that the Federal Reserve System is fully prepared for the Year 2000; 100 percent of the Federal Reserve mission-critical systems are ready," Federal Reserve Governor Roger Ferguson said July 29 before a George Washington University Y2K conference. . . .
However, Ferguson said that some countries might not be as prepared as the United States and that "all countries should hold themselves to the highest standard of self-disclosure, so that financial markets can make fully informed decisions."
Emerging market economies may be more prone to "failure due to technical difficulties," he said. "Emerging markets economies that are not making the satisfactory progress should disclose their status and seek assistance... and engage in contingency planning."
The lack of preparedness can be even further hampered by lack of infrastructure readiness, such as telecommunications, water and power. Ferguson said that basic infrastructure readiness cannot be taken for granted.
Following is the text of Ferguson's remarks as prepared for delivery:
(begin text)
Remarks by Governor Roger W. Ferguson, Jr. Before the George Washington University Y2K Group, Washington, DC (July 29, 1999)
Continuing the Countdown to Year 2000: Focusing on Public Disclosure and Public Confidence
. . . These Year 2000 discussions, and others like them around the nation, will help to create public awareness and understanding, which are very important building blocks in the structure of public confidence. I will come back to the confidence issue in a few minutes, but I will commence with a review of progress to date.
Preparedness of the Domestic Banking Industry. . . .
Much of my emerging confidence results from the fact that the Federal Reserve System is fully prepared for the Year 2000; 100 percent of the Federal Reserve's mission-critical systems are ready. At the Federal Reserve Board and the 12 District Banks, we are using today the automated systems that we will use in the Year 2000. In fact, we have been testing these systems for more than a year with banks and thrifts that are linked to us around the country for payments and related functions. These tests have gone extremely well. This is significant because the Federal Reserve Banks operate the hub of the nation's payments system, providing depository institutions with essential services in cash, checks, and electronic payments. Thus, because of the Federal Reserve's readiness, Americans can have confidence that the nation's basic payments infrastructure is sound and ready to process payments as usual before and after the century date change.
Another fact that gives me confidence in the domestic financial sector's preparations for the century date change is that almost all of the nation's banks, thrift institutions, and credit unions are ready for Year 2000. The Federal Deposit Insurance Corporation (FDIC) reported last month that 98.3 percent of insured institutions were ready. These good evaluations reflect years of diligent work by thousands of large and small institutions alike to meet rather aggressive deadlines for mission critical systems set by the regulators. . . .
Combined with the readiness of the Federal Reserve to support the nation's payments infrastructure, the readiness of commercial banks means that we can expect that the processing systems that support all methods of payment -- ATM cards, debit cards, credit cards, direct deposit and other electronic payments, checks, and even cash -- will work smoothly around the date change. . . .
Moreover, if isolated glitches do emerge, the Federal Reserve and depository institutions will draw on their contingency plans to get systems operating again as promptly as possible.
At the Federal Reserve, we have extensive contingency plans, many of them already well tested during hurricanes, blizzards, and other events. . . .
One recent example of our contingency planning is the establishment of special liquidity arrangements for borrowing by depository institutions. . . .
To be prepared in case our fellow citizens choose to have a little extra cash on hand for the century rollover -- it will be a long holiday weekend for many, after all -- the Federal Reserve is building an inventory of currency in our vaults. This inventory will be more than enough to meet any conceivable demand for cash. Given the high expectation that all normal payments methods will work, we do not expect that there will be any unusual demand for cash, but if there is, we will be ready to meet it. . . .
Having detailed the readiness and contingency planning of the Federal Reserve and the entire U.S. banking sector, I hope you can understand why I am increasingly confident that generally normal operations will prevail in this country's financial institutions during the century date change.
International Financial Sector Developments
Turning now to the international arena, I am encouraged at the progress being made this year by most foreign financial regulators and the largest financial institutions to meet the Year 2000 challenge, but I am somewhat less certain of the international preparations than I am of our domestic readiness.
Let me emphasize that I am somewhat less certain, not fearful. . . .
However, in my role as Chairman of the Joint Year 2000 Council, which is an international group of financial regulators representing banking, insurance, and securities regulators, as well as central bankers and payment system overseers, I have information that helps bring some of the issues into clearer focus.
The preparation of our domestic payments links is bolstered by the fact that foreign financial services firms are generally believed to be among the best prepared in their respective countries. We do know that the largest, most internationally active firms are making good progress toward preparedness. They are forced to do so in order to remain viable in their home markets and globally.
I also know that awareness among financial regulators is high. The Joint Year 2000 Council has held meetings in all regions of the globe. . . .
Another positive perspective flows from the large and very successful test of domestic and cross-border payments systems last month. In this test using a simulated Year 2000 environment, more than 500 financial market participants from 19 countries were able to complete transactions in 34 national and international payment systems. The test included sending and receiving payment instructions, and payment settlements. There were virtually no errors, and the few problems discovered were remedied quickly. . . .
Avoiding Complacency
We should not let these recent successes lead to complacency, either domestically or internationally. . . .
Full and fact-based information will certainly help individuals maintain perspective and encourage them to avoid taking needless risks. On the other hand, incomplete information or misunderstanding may cause some to take risks such as shifting deposits from banks, or withdrawing large sums of cash, or even making unreasoned decisions about other assets they hold. Without solid perspective about Year 2000 preparations, others may fall victim to Year 2000-related frauds or be asked to buy Year 2000 products and services of questionable value.
Similarly, there is still work to be done internationally. . . .
This need for disclosure includes industrial countries, as well as developing countries. Similarly, financial market participants need to seek full information on international preparedness, and make reasonable, calm, and considered -- not hasty--trade-offs between risk and reward.
Now that it seems as though the developed world is generally well positioned in dealing with the Year 2000 problem, the focus has shifted to the "emerging market countries." This group is described by some to be at the greatest risk of failure due to technical difficulties. My concern is that "emerging market countries" is too broad a group of nations, numbering well over 100. It is important that emerging and newly industrialized economies making good progress toward preparedness, and there are many, disclose that as clearly as possible. Market participants should look for and make those disclosures part of their decisionmaking.
Those "emerging market economies" that are not making satisfactory progress should disclose their status and seek assistance as they work to remediate mission-critical systems and engage in contingency planning. In particular, financial institution preparedness can be hampered by a lack of preparedness in critical infrastructure -- telecommunications, power, and water. This cannot be taken for granted. . . .
Finally, good contingency planning, including manual work-arounds may avoid serious problems. Ultimately, however, systems will have to be fixed or replaced, whether before the century date change or after, and the sooner the process is started, the better.
Conclusion
To sum up, I believe that the U.S. banking system is largely ready for the Year 2000 and that major foreign financial institutions generally are working diligently to be ready as well by January 1. . . .
Thus, with the technical and business elements generally making good progress, the real issue remaining for the United States and other leading countries is that of public awareness, understanding, and ultimately, public confidence.
We should all recognize that the Year 2000 event is unique in that we all know that it will occur, but exactly what will occur is uncertain. In this environment, we should listen to the most reasonable and responsible sources.
Part of maintaining public confidence is fact-based disclosure to both the public at large and to market counterparties. Disclosure still remains an issue for some, particularly as "emerging market economies" seek to distinguish those making good progress from those that need to increase efforts. Many emerging market and newly industrialized countries are making good progress. For some countries, technical challenges may remain, particularly for those that recognized this problem relatively recently.
Finally, we know that there are likely to be some glitches, which I would expect to be small and of short duration. Similarly, I would expect any international disturbances to be limited in terms of the number of institutions and countries affected. In order to achieve that outcome, however, some countries and institutions should focus on mission critical systems, and all should engage in contingency planning as the key activity now.
By remaining dedicated for the next five months we can all ensure that the work of the last several years is completed fully, and any remaining risks are minimized. I believe that those who have been working on this effort will rise to the challenge.
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