Regional President Speech

Federal Reserve Bank of San Francisco ABOUT US OUR PEOPLE JOIN US What We Study Our District Research & Insights News & Media / NEWS & MEDIA / SPEECHES / ROBERT T. PARRY’S SPEECHES Y2K: What You Can Bank On SPEECH INFO Luncheon Address Town Hall, Los Angeles Los Angeles Marriott, 333 Figueroa Street, Los Angeles, California For delivery July 13, 1999, at approximately 12:45 p.m. Pacific Daylight Time (3:45 p.m. Eastern Daylight Time) by Robert T. Parry, President, Federal Reserve Bank of San Francisco Good afternoon. I’m delighted to be here today. Frankly, I’m here on a mission–one I share with the other Fed Presidents and members of the Board of Governors in Washington. We want to get information about Y2K and the banking industry out to the public. Of course, I’m sure you all know what the Y2K “bug” is. Some equipment has computer chips that won’t recognize the new century date, because they were designed to run assuming the year began with the number “19,” not the number “20.” Now, I know my Fed colleagues and I have a reputation either for not saying much, or for not being clear when we do say something. In fact, Chairman Greenspan once said, “If I seem unusually clear to you, you must have misunderstood what I said.” But my mission today is to be perfectly clear–both about the impact of the Y2K problem on the U.S. financial system and about the steps being taken to address it. So I’m going to touch on four major points: First, what the Fed is doing about Y2K compliance for itself; second, where we stand with the financial institutions we supervise; third, what’s going on in related areas beyond the Fed’s domain; and, finally, what you can do to ensure a smooth transition for yourself as the century rolls over. And I’ve brought with me three experts who’ll help answer some of your questions. Gordon Werkema is Executive Vice President for our Northern Region, and he’s in charge of Information and Technology Services and customer testing for Y2K. Marla Borowski is an Assistant Vice President, and she manages the District Cash Product Office. Bob Johnson is an Assistant Vice President, and he is responsible for regional and community supervision of banks and bank holding companies in our District. After my remarks, we’ll all be available to field your questions. Before I tell you why I’m confident about the U.S. financial system’s “state of readiness,” let me mention that–as an economist–I deal with probabilities all the time. I think the probabilities are very high that on January 1, 2000, nothing very unusual is going to happen. The financial services you’ve come to rely on–checks, ATMs, debit cards, credit cards, direct payment, and direct deposit, for example– will operate normally. But probabilities aren’t certainties. Problems could crop up–just as they could any day of the week, Y2K bug or not. For example, have you ever been watching a close ball game on television, and suddenly your screen goes blank because either the cable went out or the power failed? Or have you gone to the checkout line at your supermarket and found the cashier couldn’t scan your groceries? Things happen. So I wouldn’t be surprised if there were some disruptions here and there. But I want to stress this point: people at the Fed and elsewhere are making good progress–in many cases, excellent progress–not only in resolving the Y2K problem, but also in preparing to deal with any disruptions that may occur. I’ll start with the Fed’s efforts to get its own house in order. To show you how important addressing the Y2K problem is to us, let me quickly describe our role in the settlement of financial markets. Every day, over two trillion dollars pass through Reserve Bank books. That money represents the settlement of the U.S. government securities market, the eurodollar market, the dollar leg of all other foreign exchange transactions, a wide variety of security and bond markets, and about sixty-six million checks and sixteen million automated clearing house transactions–among other things! Frankly, if the Reserve Bank systems don’t function properly, much of everything else in the U.S. financial system comes to a halt. So, what’s the current status? I’d say it’s very good–not just for settlements, but for all the systems that are critical to the Fed’s mission. And the status should be very good, because we’ve been working on this problem for five years. As of June 30, 100 percent of our “mission-critical” systems have been classified Y2K compliant, and those systems are in use right now: yes, the Fed is at 100 percent! Now, what about the institutions we supervise? The Federal Reserve and the other federal banking agencies have examined every federally insured depository institution in the country for Y2K readiness–not just once, but several times. The banking agencies have set dates for completing all phases of Y2K preparations. These include: making inventories of systems with Y2K problems, developing plans to remediate or replace those systems, implementing and testing Y2K compliant systems, and completing contingency plans. We’ve found that banks are making excellent progress in meeting these milestones. In fact, over 98 percent of all banks are making satisfactory progress. And the few that aren’t ready now are getting our full attention. In addition, we’re requiring banks to assess customer and counter party risk and to take steps to mitigate those risks. And we’re overseeing major service providers and software vendors as well. Now let’s move beyond the Fed’s domain. This, of course, is a very broad area. It includes everything from securities, insurance, and mutual fund companies to stock exchanges and clearinghouses, from public utilities, like power, water, transportation, telecommunications, and U.S. government agencies to the businesses, financial systems, and governments of countries abroad. I’ll start with the first category–the U.S. financial services industry beyond commercial banks. Their regulators have been working toward Y2K compliance, just as we have. State agencies and the Securities and Exchange Commission have set milestones for renovation and replacement that are similar to ours, and the progress appears to be moving along well. In fact, the SEC has indicated that the securities exchanges and clearinghouses should be compliant well in advance of the new century. As for the category of public utilities, it’s being overseen largely by the President’s Council on the Year 2000. The Fed chairs the Workgroup on the Financial Sector. This workgroup stays in constant touch with other sector workgroups to identify problems and clarify priorities. Overall, it looks as if major vendors of utilities will be on track with Y2K compliance. As for government services, the systems most directly affecting our financial systems–those in Treasury and Social Security– seem to be in good shape, though some testing with the Fed remains to be done. Finally, I’ll turn to the international arena. The Fed is involved in this area through the Joint Year 2000 Council. This is an information clearinghouse on Y2K issues for 170 countries. Governor Roger Ferguson, of the Board of Governors in Washington, is the chairman, and the other members include central bankers, bank supervisors, and insurance and securities regulators. In addition, there’s a private sector group known as the Global 2000 Coordinating group. These people are working to coordinate Y2K initiatives in the world financial community. Both the Joint Council and Global 2000 Group have done a lot of work. They’ve assessed the readiness of various markets, conducted surveys, and encouraged readiness in a variety of ways. But neither has regulatory enforcement power, so the uncertainties in this area are higher. Now that I’ve covered the ways we’re trying to prevent problems, let me turn to our plans to deal with problems that do crop up. Even though we expect all payments methods to work, including ATMs, we know that some people still may want to take out extra cash during the changeover. So, as a precautionary measure, we’re going to increase the amount of cash in our vaults, and we’ll also extend the hours of our operation, if necessary. I understand that many banks are doing the same. In addition, Reserve Banks have made it clear that they’ll stand ready to lend, in appropriate circumstances, to depository institutions. Now, let me just note here that I don’t think it’s a good idea to take a lot of cash out of your bank and put it under your mattress. Why? Because the Federal Deposit Insurance Corporation does insure up to one hundred thousand dollars of your money in the bank–but it doesn’t insure your mattress! My fourth major point is how you can avoid or minimize any Y2K problems with your finances. Here are some steps I recommend. First, go for redundancy: back up your financial records, and as they come in, review them carefully for accuracy. Second, check for Y2K readiness: run tests on your own computer, and talk to your bank, your broker, and whoever handles your money to find out the status of their Y2K readiness. Finally, security: watch out for scam artists trying to make a quick buck on Y2K fears. Scrutinize Y2K products and services to make sure you really need them and that they’ll work, and guard your personal information, such as bank account numbers, Social Security numbers, and credit card numbers. Well, that wraps up this general status report, which was a big part of my “mission” today. The Fed has made communications about Y2K a mission, because public confidence in our financial system is going to be critical during the century date change. Fortunately, we’re seeing evidence that the American public–as usual–has a pretty good grasp of what’s going on. In fact, a March Gallup poll shows that only 9 percent of those surveyed thought they’d personally experience major problems because of Y2K–that’s down from 14 percent in December. The results indicate that the more consumers know about Y2K, the more likely they are to take rational precautions and not take drastic steps. To the extent that those survey results reflect trust in the Fed and other institutions charged with safeguarding the financial system in this country, I’d say we’re a lot closer to “mission: accomplished” than to “mission: impossible”! And we at the Fed are prepared to continue to earn that trust as the new millennium approaches and well beyond. SHARE

Robert T. Parry (1999, July 12). Regional President Speech. Speeches, Federal Reserve. https://whenthefedspeaks.com/doc/regional_speeche_19990713_robert_t_parry

@misc{wtfs_regional_speeche_19990713_robert_t_parry,
  author = {Robert T. Parry},
  title = {Regional President Speech},
  year = {1999},
  month = {Jul},
  howpublished = {Speeches, Federal Reserve},
  url = {https://whenthefedspeaks.com/doc/regional_speeche_19990713_robert_t_parry},
  note = {Retrieved via When the Fed Speaks corpus}
}