be finished by the middle of 1998. to assess the preparation of australian banks for year 2000, we asked them in may to complete a comprehensive survey. some of the results from this can be summarised usefully under the first four headings of the basle committee ’ s recommended program. ( i ) developing a strategy to tackle the problem : some banks have been rather slow to do this, and several had not completed their strategies when our survey arrived. some banks have placed the ceo or a director in charge of their project, while in others an it staffer has responsibility. there are dangers in the latter course, because year 2000 is big enough and threatening enough to be treated as a business issue and not simply a technical problem. ( ii ) creating organisational awareness : awareness appears to be strong in it areas, but it varies dramatically elsewhere. some banks have ( or will soon have ) arranged training for all staff, incorporated year 2000 into credit review procedures and made relationship managers responsible for compliance by customers. in contrast, others had not even arranged formal briefing of people in their non - it areas who might be developing spreadsheets and small databases in blissful ignorance of the issue. ( iii ) assessing actions and developing detailed plans : nearly half the banks had not completed their assessments at the time of our survey. this might reflect their adoption of an iterative approach, where key systems were identified early and compliance work begun, with minor systems the subject of later investigation. it also indicates, however, that a few banks are having trouble grappling with the problem. ( iv ) renovating systems, applications and equipment : most banks are currently in this stage, but they have made only modest progress. at mid - year less than 10 per cent of the expected total cost of year 2000 compliance - - of around $ 600 million - - had been spent. ( although substantial, this figure is itself about 10 per cent of total expected it expenditures between now and the end of the decade. ) the remaining two steps - - validation through testing and the implementing of tested, compliant systems - - are, of course, still ahead. a few other observations are worth making from our survey results. most banks have adopted the end - 1998 target for achieving year 2000 compliance. along with the basle committee, we regard this as highly desirable. a few banks have acknowledged that full compliance will not be achieved until some time in 1999. some of these have structured their projects so that non - critical systems

trading linkages. banks will need to co - operate closely to ensure that such cross - institutional links are fully tested. the new rtgs system for high - value payments - - on which i will say more in a moment - - was built with year 2000 in mind. even so, a comprehensive test plan has been developed for rtgs and its suitability is being confirmed with a number of system participants. this plan allows for full testing in conjunction with participants ’ interface systems, and aims to confirm that the rtgs system is year 2000 compliant by the end of 1998. meanwhile, the australian payments clearing association has formed a special consultative group to address issues relating to the other clearing systems. banks must also prepare for problems affecting their customers ( as well as trading counterparties in wholesale markets ) and should be inquiring into the year 2000 readiness of their borrowers and potential borrowers. the effects of year 2000 could severely interfere with the conduct of borrowers ’ businesses and reduce their capacity to meet loan obligations. customers could also find themselves unable to use electronic links to their banks, and try to revert to manual processing. this would put considerable strain on banks ’ resources. if not well - prepared, banks could also be drawn into extensive legal actions flowing from year 2000 breakdowns. the rba will continue to disseminate information about year 2000 issues, and will help to co - ordinate renovation and testing where we can. we are participating in an inter - bank working group which will aim to ensure that core banking systems and other shared infrastructure are fully tested, and that exposure to telecommunications problems are limited ; to work with key vendors to ensure that their products conform to agreed compliance guidelines ; and to develop contingency measures for critical areas. this group will also be playing an education role with banks ’ business partners and customers. let me now describe briefly what the rba is doing about its own house. our target is to have our systems fully year 2000 compliant by the end of next year. our project is overseen by a steering group of senior officers. while the scale of the challenge is not as great for us as for many other financial institutions, our technology platform is complex, involving a mix of hardware and software developed inhouse and also provided by third - party suppliers. it encompasses the exchange of data and services with the commonwealth government, some state governments and the financial community at large - - banks, non - bank financial institutions, austraclear and so on. we