Mr Kelly's observations on Y2K compliance and the banking system  (Central Bank Articles and Speeches, 10 Mar 1999)
Central bank: fed | Type: speech | Date: 1999-03-10

## Mr Kelly's observations on Y2K compliance and the banking systemSpeech by Edward W Kelley, Jr, a member of the Board of Governors of the US Federal Rese System, to the Media Studies Center, New York, New York on 10 March 1999Good

Morning.

My thanks to the Media Studies Center and the Freedom Forum for inviting Federal Reserve to participate in this meeting and, more important, for the initiative of sp gathering to discuss what I believe to be a critically important topic.

As you may kno devoted a good deal of time to Y2K preparation over the last two years, and in that proc talked to a wide spectrum of people.

I have reached the conclusion that, now that the count aggressively addressing the problem, the most important single element in our successfully n through the challenges presented by the 'millennium bug' is how the public responds to it. very few places in our national life where the statement that 'attitude can affect outc compellingly demonstrated as in the banking sector, particularly as we work to address Y2K.You will no doubt agree that the best way to engender a strong and positive public attitude open and candid discussion, which I would like to encourage by briefly addressing th questions.

First, what are the critical components of public confidence in the banking syste are the industry, its regulators, and the central bank working to earn public trust in the Second, what are we confident about and what are we concerned about?

When the media assesse financial risk element of the Y2K story, these may be appropriate places to start.

And fina we hope the media will do in the coming months?I believe there are four important elements needed for public confidence in banks and th system, and each is being addressed as we prepare for potential Y2K problems.

Bank customer to be assured- of ready access to cash and other funds and bank services- that their bank records are secure- that competent and energetic government supervision is being conducted- that deposit insurance is in place and inviolateI want to elaborate on these elements because I believe that public understanding of th industry's Y2K preparations will help maintain public confidence.First, cash availability.

We do not see any need for a vast surge in demand for cash late t if that should occur, it is the Federal Reserve's responsibility to have available what required, and that responsibility will be met.

An array of preparations are being made that currency will be available as needed in Federal Reserve vaults.

The biggest challenge w getting it to the right place at the right time, and extensive advance planning is under w well.Concerning the availability of other funds and bank services, including assurance that records are secure, the federal bank supervisory authorities - of which the Fed is one completing their second inspection of every bank and thrift, some 10,600 institutions.

An banks, and all banks identified as keys to systemic safety, will receive additional scrutin this year.

We are inspecting to be certain that precisely those matters I just mentione addressed.

The overwhelming majority of institutions are reported by our examiners to be thorough preparatory job, and they will be fully ready well in advance of December 31, competent and energetic supervisory presence is at work, providing not only oversight, but and advice with testing, contingency plans, customer relations, and so forth.Last but not least, the FDIC is fully prepared, and depositors are dependably insured $100,000 per deposit.No one can say there won't be glitches, but all of this gives us a great deal of confidence banking sector will be ready.

To repeat, we are confident that the overwhelming majority of banks carefully and thoroughly preparing themselves and that, even if problems should arise, they can will be readily handled, and that the financial system will not seize up or crash.

A guarantee? educated confidence?

Yes.

Our hope is that the media will carefully check out these assertions a they prove to be reasonable, report the story that way.There are concerns, of course.

Even though banks themselves are ready, other essential parts o infrastructure with which banks are interdependent may be less so.

The challenges posed by Y2K the smooth operation of our computer-driven society are so ubiquitous and interrelated that it i possible that not everything will be fixed that needs to be fixed in advance of December 31. than anything else this is a race with time.

There is so much work to do that there may not be e time left for everyone to complete all of the tasks that they well know need to be completed.

We have as much information about preparations internationally, and some countries are apparently o now beginning to seriously address the issue.

We do not believe this will seriously affect worl financial activity, but it could result in some disruptions abroad.These concerns make contingency planning crucial across all of our economy, but they are all mat that we know, at least in the technical sense, how to address.

From our vantage point, ano important concern is the possibility of our citizenry becoming so overly worried about what m happen that there could be created the very type of problem we are working so hard to prevent.Many people would like to have an ironclad guarantee that there will be no Y2K disruption, but guarantee is simply not available.

We cannot know in advance exactly how the millennium rollove will go.

The truth is that no one can guarantee that everything will work perfectly even lat morning, but we do have every confidence that it will.

That should be a message of reassurance, of concern, and it is a good perspective on Y2K.

Public confidence does not require that ever believe that everything will always work perfectly.

People know that is not the case.

Rather the needs to be confident that the information it is receiving is complete, reliable, and adequate for them to take actions appropriate to their own circumstances.

If given this information, we confidence that the public will keep the Y2K rollover in perspective, realizing it is one challenge we as a nation will meet.In closing, let me spend a moment on my thoughts about what the media might consider as this st is reported over the next 10 months.

This is a rapidly evolving situation, and demands of thos cover it an ongoing commitment to staying on top of developments, as facts here have a very sh half-life.

A given condition of preparedness observed even a few weeks ago is quite likely dif today.

No one should be a 'Pollyanna' about Y2K but, based on the huge amount of work being done to prepare, it is just not responsible to be a 'Chicken Little' either.

We do not expect the s Let's not let 'experts' make unproved assertions, or offer personal opinions as facts, wi challenging the basis for them.

And let's not treat isolated events as if they were a broadly reality.There is much work to be done in local communities and we hope the media will be a powerful voic in urging the public to seek legitimate information, maintain perspective, and act with common s Suggest calm attentiveness to preparations.

Provide 'how to' pointers and advice.

Focus contingency planning.

Suggest and highlight sensible actions by small businesses.

Encoura community leadership.

Promote education about the problem.

Hold opinion leaders and public services providers accountable for accurate, consistent flows of information.

Accept that ce things are unknowable and do not agonize over that - we deal with uncertainties every day with loss of confidence.

If glitches occur or problems loom, report fully on them of course, but mak to place the problem in an appropriate context.

Balance and perspective are key.Y2K gives reporters an extraordinary opportunity to do what they do best - learn the facts, evidence, and inform the public.

You have a nation of attentive readers and listeners who trust your expertise, and who will prepare for the rollover with your perspective in mind and reliable information is every bit as important to our country's success in preparing fo all of the technical work being done.