Federal Reserve Nightmares

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Here's something that worries me, deep in the dark heart of the night: The Federal Reserve began its assessment of its Y2K problems in August, 1997. Edward Kelley, one of the top dogs at the Fed has stated that they have 90 million lines of code. Here we are about 18 months later and they are claiming almost complete code compliance.

90 million lines of code in 18 months, all checked and corrected, no problems? I find this hard to believe. What if they're: 1. wrong or 2. lying? If they're not compliant, we've got big trouble. And what about corrupt data from all the overseas banks that will not be compliant, according to numerous studies and surveys?

-- cody varian (cody@y2ksurvive.com), March 10, 1999


Dear 'I've had it,'

Thanks for providing the link to Mr. Kelly's remarks. If you read the text of his remarks, he does not claim that all 10,600 banks ARE compliant, but merely that he's confident that the overwhelming majority will BE compliant.

I'm glad he's confident, and I hope he's right; indeed, I still believe that if any industry succeeds in remediating all of their internal systems, it's likely to be the banks and financial institutions.

But it's fairly clear from the remarks on this thread, as well as the results of a Gallup poll taken in December, that many citizens are not willing to take the word of a banker at face value. And most of us in the computer field have the same overall concern (a more polite word than "distrust") about ALL of the optimistic statements of Y2K status and compliance efforts: there is no independent third-party verification and validation.

Now, in the case of the banking industry, Mr. Kelly points out that the FDIC inspectors are now making their second round of inspections. But we don't know who those folks are; we don't know if they would recognize a computer if they fell over one; and we have no idea how thorough and comprehensive their inspections really are.

What worries me most of all is that the banks are specifically prohibited, by law, from disclosing the results of those Y2K inspections. If everything is so wonderful, and if the banks are in such great shape, why is it that nobody is allowed to see the results of the inspection. It would be like the New York Stock Exchange telling you that you're not allowed to see the results of a company's audited financial statement before making an investment.

I checked on the Web just a moment ago to ensure that the relevant FDIC ruling is still there. Check it out yourself; here's the link

Without a publicly-disclosed, independent third-party audit or IV&V, any assurances of Y2K compliance have to be regarded with a certain degree of skepticism.


-- Ed Yourdon (ed@yourdon.com), March 10, 1999.

U.S. banks 'ready for Y2K'


-- I've had it with all you people's what ifs (whatif@whatif.whatif), March 10, 1999.

Fed Reserve

-- Tod (muhgi@yahoo.com), March 10, 1999.


No need to worry. After all, it's not real money anyway. Once everyone figures that out, it won't be a problem.

Got gold??

-- nobody (nobody@home.org), March 10, 1999.

Dear "Whatif@whatif.whatif":::

One of the ways I make sure that a first aid coverage I do runs well is to sit down and have a long talk with a number of people who are as good as I am or maybe better at providing care for LARGE groups. We go over EVERYTHING we can think of from the simple "vendor enriched the salad with the tip of his finger on the slicer" to "the propane canister on the elephant ears truck just blew up" to "an Indycar just found its way into the stands off of the chicane before start/finish" to "we're replaying 1969 and the tornado storm is coming in of the lake in an hour".

We then prepare plans for each of these eventualities, making sure we have the interfaces in place we need, making sure that the LZ's for Lifeflight are in their inventory, etc. We then generate a general disaster plan, using the elements from all of these so that we can be as flexible as possible, since we are reasonably sure that we have missed at least one possibility.

(As it happens, we do. We had a person (loosely used term) fall/slide down a bank a couple years ago, We boarded him, called the ALS folks and extricated him. During the extrication, he said something about hitting something with the front of his neck, and his throat was getting really sore. The ALS folks tubed him immediately and he went out REAL FAST to the hospital. Turned out he was INCREDIBLY LUCKY as he had a fractured larynx. Was this in our plans that year?? Nope. Has something similar been in them each year since?? YUP!)

This is why we all do the "What if game." It helps to insure that we haven't overlooked a HUGE hole in preparation, unlike the usual folks in huricane country who go and buy microwave frozen dinners.

Chuck, EMT-P, Night driver

-- Chuck, a night driver (reinzoo@en.com), March 10, 1999.

"I've had it",

Here's a question someone asked the other day about the financial system, followed by my response.



I haven't heard or read of any major mishaps with any IRS filings going on. Is it safe to interpret that the IRS is Y2K compliant? Also, I was wondering how mortgage lenders and banks have been dealing with handing out 30 year mortgages that must have to forecast beyond 2000 and take that into account. Is it safe to say that all lending organizations and banks that deal with mortgages are also Y2K compliant? For that matter I would have thought that any lending institution that has issued loans for cars, etc. within the last year at least must have had to project beyond 2000, does that mean they too are Y2K compliant?

Also, credit organizations that are issuing cards with expiry dates of 00 and beyond have to be compliant too don't they? When these same cards function without any mishap in an ATM machine is it then safe to assume that that ATM machine is Y2K compliant. Or is it still vulnerable to embedded micro-processors malfunctioning on Jan 1, 2000, or thereafter?

Also, MVA's that are issuing driver's licenses that expire beyond 00 have to be compliant too don't they?

Where I work I have just received a computerised projection for my pension plan that goes beyond 2000. Can I take it that the system that produced this projection is Y2K compliant?

-- Lurking (thru@timebomb2000.com), March 09, 1999



The short answer to your question is that the financial sector is the best prepared for Y2K, while utilities are the LEAST prepared sector.

As you pointed out, certain departments in banks and similiar institutions have had to deal with post-1999 dates for a long time. When it got to the late 1990's, these institutions knew they had better starting making all their departments Y2K compliant.

The biggest problem facing the U.S. financial system isn't non- compliance on its part. The problem would be non-compliant foreign banks, plus bad loans with bankrupt businesses here and overseas.

Again, U.S. banks in and of themselves should be in good shape. It's utilities and other sectors of the economy that concern me. The credit card industry had its warning two or three years ago about Y2K when cards with post-1999 dates wouldn't work.

It's businesses and utilities that did not have this kind of early warning and who waited until 1998 to begin Y2K remediation that concern me.

The IRS? See this link:


This would have been good news, if true. Let's see how quickly tax refunds come back this spring.

-- Kevin (mixesmusic@worldnet.att.net), March 09, 1999


-- Kevin (mixesmusic@worldnet.att.net), March 10, 1999.

I think the positive aspect of "what ifing" things is to keep your mind open for unexpected events. Events seldom turn out like you expect them. An open mind helps you to prepare quicker for unexpected turns in events. Y2K may unfold in an ugly and totally unexpected way. Sincerely, Apple

-- Apple (villarta@itsnet.com), March 10, 1999.

I've had it: Then go soak your head in the sand and quit wasting our bandwidth.

-- a (a@a.a), March 10, 1999.

Re: Kevin's wonderings about financial institutions being Y2K compliant because of mortgages that look ahead, etc. I'm not a computer person, but clearly the financial institutions wouldn't have been spending billions in the past year alone if their look-ahead systems, e.g., long term mortgage calculations, were all there is to it.

-- Bill Byars (billbyars@softwaresmith.com), March 10, 1999.

My $0.02 on the banks.

1 - It is my money.(or what currently passes for money in our society) 2 - Treat it like hang gliding, don't go any higher than you mind falling.

-- Ken Seger (kenseger@earthlink.net), March 10, 1999.

Looking for an independent consultant or review is not a bad idea in the abstract, but you should take into consideration how banks operate normally. Banks are constantly being reviewed by the FDIC; these FDIC reviews result in an overall "safety and soundness" report card (the so-called "CAMEL" rating). These CAMEL ratings may not, by law, be publicized. In that sense, Y2k reviews are no different. For all you know, your current bank could have a "3" CAMEL rating (very bad) for reasons having nothing to do with Y2k (e.g., lots of loans that will foreseeably not be paid by the borrowers).

On the other hand, it's worthwhile to think about the fact that state and federally chartered bank deposits are insured by the FDIC. This means that, in the case of an individual, the FDIC will pay up to $100,000 per account. Not even a dime has been lost by any account holder on a FDIC insured account during the 65 year life of the FDIC.

So what will bankers do? Let's assume that all of their efforts are for naught, and uniformly throughout the US all banks' computer systems fail. Year 2000 readiness procedures issued by the FDIC now require each bank to have a hard-copy of all accounts as of close of business on 12/31/1999 (as well as on 9/9/1999, for you "end of file" purists). So the bank will have to revert to paper transactions, on January 1, 2000. It may be slower and more cumbersome (e.g., you'll have to go to a teller), but the record of your money will still be there. Pain in the neck? Sure. But not apocalyptic.

The bigger threat in the case of personal deposits is not the Y2k problem itself -- it's the fear of the Y2k problem (i.e., many customers wrongly believing that their accounts are in trouble, seeking to withdraw their funds and thus causing a run on a bank or a number of banks). Confidence is what upholds the world financial system, not computers.

Now let's talk about the interbank transactions, which are really the thrust of Cody's concern. Again, the Fedwire (and CHIPs) is based on computer, and much of it relies on telephones. The nature of Fedwire (and CHIPs), however, is to transfer records of money between Federal Reserve Member Banks (or, if you are a CHIPs'er, members of that interbank system). It's only accounting entries. So if X Bank needs cash and Y Bank has cash, they credit and debit accordingly. Trucks with dollar bills in them move currency only infrequently. So the concern is banks' ability to consummate transactions without computers (i.e., on paper). Again, FDIC insured banks are required to now make plans based on the assumption that all computers won't work -- even though many have indicated (informally) that all of their systems have been tested. (For those who are about to raise the issue about their local bank, and how there's no way they have anyone who could tell Unix from eunuchs: small banks are probably going to be least impacted by Y2k -- virtually all contract out their data processing to a major service such as COCC, and all of the service providers have been required to provide an independent appraisal of Y2k readiness to the FDIC -- just like Cody wanted from the banks themselves).

Let me posit perhaps a crazy notion: that people aren't as unreasonable as many would have you think. What I mean by that is that, if a transaction were taking place over the December 31, 1999 to January 1, 2000 timeframe (or immediately after January 1, 2000), the parties to the transaction will realize that there may be (or are) disruptions in the transfer of funds. Parties will plan accordingly. It will harken back to transactions in the 1950's -- where checks took a while to clear. Disruption and slowdown? Sure. But again, not apocalyptic.

-- Jeff Donohue (jeff_donohue@hotmail.com), March 10, 1999.


The biggest problem facing the U.S. financial system isn't non- compliance on its part. The problem would be non-compliant foreign banks, plus bad loans with bankrupt businesses here and overseas.

Opinions on whether the FDIC could deal with widespread bankruptcies?

-- Kevin (mixesmusic@worldnet.att.net), March 10, 1999.

Two issues. First, as Ed pointed out, independent audits by people who know what to look for are key. IT has always been awful about this, both unmotivated and semi-competent at it, at best. You don't have to be paranoid to believe that technical audits of any industry for Y2K compliance, including banking, will follow same pattern. In fact, you can go to the bank on it.

Conclusion for first issue? Thank goodness the financial industry has done more remediation than most industries. Now, the question is: will the errors from remediation that are inherent in any fix project overwhelm the system anyway. Probably not, but we don't know and it is technically possible given the softness of technical audits.

Second issue: the potential corruption of banking data through bad date calculations that pass through date format filters (already discussed at length on this forum), especially data from overseas.

The problem here is that we may not be able to detect and correct for this until after devastating corruption has already occurred. The probability for this happening is largely unknown and in dispute: could be tiny, could be > 50%. We don't know.

If the true uncertainties inherent in any domain touched by Y2K were understood, people would withdraw most of their money. IMO, > 75% of government program to quell panic centers on persuading people that the banks are okay. To do that, they have to create the by-product conviction that basically EVERYTHING is Y2K okay. This leads to the unfortunate conundrum that people around the world will therefore prepare less than they ought to for probable disruptions in a host of areas.

Good luck to all and to all a good night. Sweet dreams. Don't let the bedbugs bite.

-- BigDog (BigDog@duffer.com), March 10, 1999.

Honestly, I just found this article two minutes ago. The regulators are reading my mind, or me, theirs.


Regulators Warn U.S. Banks To Prepare For Losses

(Last updated 5:35 PM ET March 10)

By Glenn Somerville

WASHINGTON (Reuters) - Wobbly global markets are likely to produce increased losses for U.S. lending institutions, federal regulators cautioned Wednesday in a joint letter advising banks to make sure their allowances for bad loans were high enough.

The letter was sent to U.S. banks and thrifts by the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

"We recognize that today instability in certain global markets ... is likely to increase loss inherent in affected institutions' portfolios and consequently require higher allowances for credit losses than were appropriate in more stable times," the letter said.

The letter did not name specific markets that regulators were worried about, but U.S. banks are lenders in regions like Central America where Brazil is in crisis and Asia, where several economies also continue to struggle to resume growth.

Last November, the same regulators sent another joint letter to lending institutions telling them to be sure that they properly recorded and reported their allowance for loan and lease losses.

The latest letter says regulators want to emphasize to lenders the necessity for keeping "prudent, conservative but not excessive loan loss allowances" and to take into account the rising risks from market uncertainty around the world.

It said regulators were setting up a joint working group to study how banks were determining their allowance for credit losses and to offer guidance to the lenders on what the regulators considered to be appropriate.

The letter, made public by the Fed, said that despite last November's advisory, there seemed to be "continued uncertainty among financial institutions as to the expectations of the banking and securities regulators on the appropriate amount, disclosure and documentation of the allowance for credit losses."

It said that, within a year, regulators intend to set guidelines for banks and thrifts so that they can reasonably assess the chances of losses among their lending portfolios and document how thoroughly they are preparing for them.


-- Kevin (mixesmusic@worldnet.att.net), March 10, 1999.

I appreciate everyone's response here but my main concern was not really addressed, which is: Given that most of the world's banks are not expected to by y2k compliant by next January, and given that we live in a global economy in which our banks are up to their eyeballs in loans in other countries, such as Brazil, how can our banks continue to share data with overseas banks in 2000? And if they cannot do this then are we not without an international banking system?

-- cody varian (cody@y2ksurvive.com), March 10, 1999.

Well, actually I had two concerns. One was the international banking problem and the other was the compliance of the Fed itself--not the U.S. banking system but the Federal Reserve with its 90 million lines of code.

-- cody varian (cody@y2ksurvive.com), March 10, 1999.

But you got your answer - we don't see how they can. That's a bit simplified, but near the truth.

And Mr K. doesn't want to talk about it.

-- Robert A. Cook, P.E. (Kennesaw, GA) (cook.r@csaatl.com), March 10, 1999.

Simple math. There is not enough cash to go around. If you want to have cash in hand come 1/1/00 I suggest you buy supplies first (www.y2ksupplyco.com) than take lots of cash out of the bank and find a safe place to store it until the banks prove that electronic cash will survive. If you do not have much cash then consider cash advances on credit cards and stash the money. If all goes well you can return the cash and only have to pay interest for a few months. It will probably help your credit rating since you'll have paid down your cards off in just a few months! On the other hand if things go lousy you will need the cash and will have it on hand. And if things go real bad screw the banks, it's all about personal and family safety and survival at that point.

-- bob stevens (stevensbob@hotmail.com), March 10, 1999.

I have a close relative who works for the Fed Reserve. The job is to check out banks re: y2k. We talked. Person stated "no worries about y2k...just small glitches." then admitted to having 2 generators, alternative heating and 1 years supply of food. I know what I think! Got food?

-- nurse (rtf5653@ccp.com), March 10, 1999.

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