mr. thompson considers the topic of risks in banking speech by the deputy governor of the reserve bank of australia, mr. g. j. thompson, at the australian institute of banking and finance inc., new south wales state committee, in sydney on 28 / 10 / 97. introduction i spoke in june in canberra to a joint luncheon meeting of the aibf and two other local organisations. my theme was the many faces of risk in banking. today i would like to expand on a couple of the risks i touched on then, namely : the year 2000 problem ; payments system risk, particularly in relation to settlement of foreign exchange transactions. this also gives me the opportunity to talk about the results from two surveys recently conducted by the rba. year 2000 i think almost everyone is now aware that the year 2000 will bring not only the euphoria which accompanies the arrival of a new millennium - or the approach of it, for those holding on to the view that the third millennium starts in 2001. it also brings potentially major disruption to finance, commerce and almost every aspect of daily life if computers are not able properly to comprehend the move from the year programmed as ‘ 99 ’ to the one shown as ‘ 00 ’. financial institutions are almost totally dependent on computer systems for their continuing day - to - day operations and getting dates correct is a critical element in this. they are, therefore, heavily at risk from the year 2000 problem. the rba is taking a close interest in how this problem is being addressed, both as supervisor of banks ( for the time being ) and with our broader interest in the smooth running of the financial system. the basle committee on banking supervision recently turned its attention to year 2000 risk, and has issued a paper which includes a recommended program of remedial action for all banks. the main phases of this are : ( i ) developing a strategic approach to solving the problem ; ( ii ) creating organisational awareness of its importance ; ( iii ) assessing necessary actions and developing detailed plans ; ( iv ) renovating systems, applications and equipment ; ( v ) validating this renovation through testing ; and ( vi ) implementing tested, compliant systems. the well - prepared financial institution will have completed steps ( i ) to ( iii ). it will now be engaged in step ( iv ) - - renovating systems and applications. the recommended completion date for this work, to allow sufficient time for testing, is the end of 1998. the renovation of critical systems should

##renuous terms, i will be a little relaxed about my terminology and use ‘ payment infrastructures ’ also when i mean ‘ financial market infrastructures ’, etc. 1 riksbank is launching a new service for settlement of instant payments that we call rix - inst. also, very recent, the riksbank made a decision to take preparatory steps to connect swedish krona to t2 and target2 - securities, t2s. the latter are the eurosystem ’ s platforms for large - value transfers between banks and settlement of security transactions, respectively. we will now perform an in - depth analysis of all relevant aspects that will provide the basis for deciding whether the riksbank should enter into contractual negotiations with the eurosystem. joining t2 and t2s is expected to benefit the participants of the riksbank ’ s current settlement services. for instance, they will gain from increased cost - efficiency and harmonisation, that is, alignment with european standards and practices. in the end, that should also lead to improvements for banks ’ customers. importantly, a decision to connect to t2 and t2s should be taken into account by the swedish banks in their future business and investment planning. my speech today will be about the riksbank initiatives just referred to and the motives behind them. first, however, i plan to take you on a short tour of the history of payments. this is because i believe there are lessons to be learned here. lessons that over time have formed the way that we at the riksbank think about payments and the financial infrastructure in general. as such, they have played into also our recent decisions, of course. looking at the past, the key observations that i make are the following : firstly, for a well - functioning monetary system the trust of money is key. a credible issuer can ensure this. moreover, converging on one monetary unit in a given country, what economists refer to as the uniformity of money, increases simplicity and efficiency. secondly, technological developments, often far away from payments, are an important driver of change. this goes hand in hand with innovation of ideas, humanity ’ s ability to react creatively to recognised needs. sometimes this can even lead to the emergence of new types of business. thirdly, the private and public sector complement one another by filling different roles. while the public sector provides trust and stability, the private sector takes care of innovation. throughout history, then, occasionally the