is vast and fixing it is enormously time consuming. as this audience knows, banking systems and financial services rely heavily on computer systems to manage and deliver services electronically. with the linkage of payment systems globally, a failure of any linked system could have waterfall effects to other systems and a disastrous result to the world economy. the scope of the millennium bug extends far beyond financial services and beyond the traditional notion of large mainframe processing systems. computer systems that control telecommunications, electric utilities, transportation services, and a host of other critical infrastructure systems are vulnerable. the gartner group estimates 50 million embedded - system devices worldwide will exhibit year 2000 problems. embedded chips are used to control elevators, environmental systems, navigational devices, household appliances, safes and vaults, and on and on. the pervasive reliance on computer systems is not constrained to large industrialized countries ; developing countries are also vulnerable, particularly those with older computer systems and software. i think that some “ what ifs ” cited by the computer information centre in the uk brings a practical perspective of the effect of what could happen in our everyday life as the millennium arrives. • the computers in financial services organizations, etc. cannot deliver payments to counter parties, or receive funds from them. gridlock ensues. there ’ s a collapse in financial markets because of the bad news coming from companies about their inability to trade normally. • the power fails, and it is mid - winter in the northern hemisphere and mid - summer in the southern hemisphere. the power company ’ s production is controlled by innumerable computer chips, which were installed many years ago and no one knows what they do, how they work, nor dare they touch them, because the whole of the plant might come irreparably to a standstill. more personal possibilities : • the telephone system fails - - and you ’ re unable to notify anyone of your pyramiding problems. • your medical center ’ s computer has problems and cannot trace the medicines your elderly mother has been prescribed in the past nor the conditions she has had. a doctor prescribes the wrong medicine and she becomes very ill. • you try to draw money from an atm and it refuses, even though you know you have money in your account. your bank ’ s computer thinks it is january 1, 1900 - - and you weren ’ t a customer then! as i said, fixing the year 2000 bug is not technically difficult but it is an enormous task that will be frightfully

mr. kelley discusses the “ millennium bug ” from a public sector perspective remarks by mr. edward w. kelley, jr., a member of the board of governors of the us federal reserve system, before the professional banker ’ s association, washington, d. c. on 15 / 12 / 97. i am pleased to appear before the professional banker ’ s association to discuss the millennium bug from a public sector perspective. the millennium bug, or year 2000 problem, has the potential to seriously disrupt the infrastructure of computer systems and telecommunications that the world community depends upon for the free flow of funds and payments and hence, virtually all of everyday commerce. the year 2000 problem is a business continuity issue that requires a coordinated effort by public and private business and information technology management. although the problem itself is not technically difficult, ensuring that information systems are year 2000 compliant is a management challenge of enormous scale and complexity. while this matter will impact every organization everywhere, my talk today will focus specifically on the key areas of public sector finance and banking. the global nature of today ’ s financial services industry relies upon the interconnection of computer systems world - wide. my purpose today is to identify the serious nature of the problem and the urgent need for immediate action by the government of every nation. as it will impact every country with which you interact, i believe that you of the professional banker ’ s association are in a unique position to be a catalyst for promoting attention to the year 2000, stimulating action, and promulgating best practices in developing nations. this afternoon, after sketching out the critical nature of the problem, i will focus on plans and actions being taken by the federal reserve system to address the millennium bug in its own internal operation, as a case study of what an organization like ours must do. then on to our efforts within the u. s. financial services industry and the international financial community, and finally a few words on how you can help. the millennium bug what is this problem all about? most computer operating systems and applications in use today register dates as two digits. consequently, such computer systems, software programs, or embedded chip devices can not distinguish the year 2000 from 1900, when both dates are registered as “ 00 ”. when the clock rolls over the next millennium, computations based on two digit dates will produce errors. those relatively few systems using four digit date fields will have different problems, but they will have problems, nonetheless. while the situation can be stated simply, its scope