U.S. Bancorp says it's ready for 2000, others not far behind

Dee DePass / Star Tribune

U.S. Bancorp said Thursday that it has completed major tests and that its critical computer systems are ready for the year 2000.

Bankers at Wells Fargo and TCF are nearly done with their Y2K testing too.

Year 2000 preparedness has become an important issue at banks and financial institutions nationwide, given the potential for chaos if the computers that track account balances crashed because they could not make sense of a year that doesn't begin with "19."

U.S. Bancorp officials said the tests showed that all their "critical mission" computer systems are prepared for the change from Dec. 31, 1999, to Jan. 1, 2000.

ALSO INSIDE:

TCF CEO Bill Cooper won a much richer paycheck in 1997 than in 1998.D3

The tests were performed on the bank's computer systems using real customer data. Rob Haas, manager of Y2K coordination and communication for USB, said that the testing phase included most of the bank's computer applications, such as systems for customer deposits, loans, accounting, ATM settlements and credit card systems.

The systems were removed from any contact with systems containing customer data used on a daily basis during the tests. Dates within the system were moved forward to days that might be problematic, such as Jan. 7, 2000.

"In the early 1990s we implemented significant technology upgrades and therefore are less affected than most banks," said Vice Chairman Phil Heasley. "We can now say with great confidence that we will be ready for the year 2000. . . . We will continue testing throughout the year but our critical internal systems have checked out."

Haas said the bank still must prepare its non-critical systems for the millennium and draft contingency plans in case forces beyond the bank's control -- such as a power outage -- cripple operations.

Regulators set the first testing hurdle for Dec. 31, 1998, when banks had to be substantially ready with internal systems and rank the importance of each system inside the bank. The deadline for the second phase of tests was Wednesday, when banks were to be finished testing Y2K preparedness and communications of critical vendors.

The third phase of tests, for all critical systems and contingency plans, is to be completed by June. All tests for banks nationwide are to be wrapped up by June.

Financial markets, including exchanges and brokerages, are running their own tests.

Mike Patriarca, Wells Fargo's Y2K project director, said his bank is largely ready for the millennium change.

"What we have to do between now and then is testing some of our larger corporate customers," such as payroll service customers or 401(k) plan administration customers, he said.

At TCF, Executive Vice President Earl Stratton said the bank has few outside vendors and so was largely unaffected by the March 31 deadline.

He and Patriarca said their banks will be ready by the June 30 deadline.

-- Norm (nwo@hotmail.com), April 02, 1999

Answers

I'm not an economist or a banker, so my opinion here is strictly that of an amateur ...

seems to me that the reason many people are behaving so emotionally about all of this us that we were raised (since the 1930s) to believe that, while other forms of investment had intrinsic risks, there were ZERO risks associated with keeping our assets in a bank account.

Now we're hearing people (some credible, some less so) suggesting that because of the systemic nature of Y2K, coupled with the generic nature of fractional reserve banking, that the banks might not be 100% safe.

The FDIC strongly disagrees, the Federal Reserve strongly disagrees, various other eminent folks strongly disagree ... yet a certain percentage of the common folk are beginning to mutter to themselves, "Hmmm... maybe there IS a risk."

Unfortunately, some will over-react by taking ALL of their money out of one risky environment (the banks) and moving it into another risky environnment (e.g., cash under their mattress). I'm not an expert in this area, but it seems to me that we're fooling ourselves if we think we can eliminate all of the risk by moving ALL of our assets from one place to another. Cash can be stolen; our house can burn down, along with the cash under our mattress. Gold coins can be stolen; the government can declare them illegal and attempt to confiscate them. Real estate can go up or down in value, as can any other form of stock or bonds.

There's an old folk saying that we all learned as children: don't put all your eggs in one basket. I think that's still true today. Diversification is a prudent mechanism for spreading risks in uncertain times.

-- Ed Yourdon (ed@yourdon.com), April 02, 1999.

LIES-LIES-LIES-LIES-LIES AND AGAIN LIES!!!!!!!!!!!!!!AND MORE LIES!!!

I GOT MY MONEY OUT OF THE BANK AND I'M NOT PUTTING IT BACK!!!

NOT ON YOUR LIFE, I WONT!!!!

NO WAY IN HELL!!!!

-- smitty (smitty@sandiego.com), April 02, 1999.

I stopped using banks to hold my money in 1975 a pain, but have never regetted it

-- DAryll (twinck@wfeca.net), April 02, 1999.

This is true. It is all so clear now.

-- Reader of Crystal Ball (ball@clear.now), April 02, 1999.

Maybe I am stupid. The banks all claim they will do a perfect job keeping track of my account. And you know what? They just might be able to do that.

But what if there is a massive liquidity crisis? What if a lot of the companies that borrow money from the bank seize up and fail? Then my bank and lots of others will fail.

The only conclusion I can draw is that it is very smart to take your money out of the bank before banks start acting like it is their money and there are withdrawl limits that prevent me from getting access to MY MONEY.

Norm: what will you do if your bank, through no fault of its programmers, goes bankrupt? Or do you think it is anti-social to have anyone show any kind of distrust of a finacial institution. You know that banks are designed to look like temples. Perhaps I am a heritic in the church of money. Perhaps "Norm" would prefer it if I was burned at the stake.

-- David Holladay (davidh@brailleplanet.org), April 02, 1999.

Norm - take your head out of your ass puhleeease, this is standard Banking propaganda you are posting.

They have not yet solved the problem of corrupt imported data - this, and bank runs, is their major fear.

Do open your eyes and read between the lines Norm.

With only months remaining before D-Day arrives, the critical issue must be raised; when and how will the banking system be paralyzed as a result of Y2K? Take note how the previous was worded. The question is not "if," or "maybe," but when. Indeed this seems to be the easiest Y2K event to predict: the shut down of the banking system.

At some point later this year we should see a situation were demand for currency will significantly exceed supply. Our economy operates under a means of payment called a fractional reserve banking system. Whenever a deposit is made, almost all of it is lent out to a borrower as a loan that is turn paid back in installment payments over a period of time. The depositor is then told a lie; that he can get all his money out anytime on demand.

Reserve requirements in the U.S. today are around 6-12%. On the surface this may seem like a comfortable range for normal banking operations-and it is! But wait. In reality actual cash reserves sitting in vaults and spare currency in Federal Reserve holdings is much lower. These numbers are between 1.5-2.75% of total deposit obligations. Therefore the system relies universal public and depositor confidence and faith they will have access to their savings, as it would take a mere 5% (or less) to deplete all reserves.

When banks fail, the FDIC steps in and cover a failing account for up to $100,000. However, it cannot at any one time bail-out large numbers of banks simultaneously. This is because it only holds approximately 1.5% in total deposit obligations. As a result, the FDIC can realistically insure a very small minority if a serious financial crisis were to emerge.

So how then can we be so sure our financial system will be in crisis within the coming year? The global financial network has been heavily computerized in recent times. Most of these computers by their very design have the Y2K bug built in. If the system is to remain intact, virtually all computers in this interdependent wire system must be repaired or near full compliance. Anything less than 99% accuracy in routine calculations in this digitized network creates debilitating, cumulative errors that eventually overwhelm-then halt the flow and processing of data. This is the problem of imported data between interfaces and can be likened to the way a virus can propagate.

There comes a time when propagation of bugs in the system become so pervasive that the flow of money/funds/data no longer be processed, as the time expended to hand check for corrupted data exceeds the capacity and ability to do so in a manual fashion. There is no way other than computers to efficiently handle this many transactions.

The velocity of money would be drastically reduced-if not halted. The modern division of labor would collapse without this constant transfer of information to occur. This means that even if 70, or 80, or even 90% of U.S. banks managed to get 100% compliant before 2000, the seeming minority who fail would mess up the compliance of the whole system.

That being said, we have a legitimate concern that ATM's and other transactions will suffer severe disruptions in the weeks and months following Jan 1,2000. This would necessitate the prudent action of withdrawing (or refusing to deposit) a "month or two" of cash from the bank. At least that is what any reasonable person would conclude.

There are 103, 000,000 households in the U.S. The average monthly earnings are around $3,000 per head of household. For the sake of argument let's conservative and say that the average worker (139 million) will have $1,000 cash on hand (which takes into account the fact that some have none and some have much more) This would be $139 billion. Let's say that households take out an average of 15% of their bank accounts to be safe. This would be another $50 billion. Now let's say that 25% of small businesses plan to have two weeks cash to ensure payroll for employees. That's another $31 billion. Let's say that businesses, out of concern for their investments, withdraw an average of 5% of their deposits (Business deposits total $3.1 trillion). That's another $155 billion.

Now let's add it all up. $ 139 Billion

+$ 50 Billion

+$ 31 Billion

+$ 155 Billion

___________

A Total of $ 375 billion in cash will be demanded.

This doesn't sound too bad does it? What if these numbers are doubled? $ 750 billion. So this begs the question: Is there enough currency to meet this demand? Fact: Existing bank reserves are 49.4 billion. The Federal reserve has promised to have an extra $200 billion specifically for Y2K. Adding these two figures we have a total of $249 billion that the banks will have available. This would not only drain ALL reserves, but banks would be short -$125 billion!!- There would be no more cash left.

But wait, it gets worse. The above are based on very reasonable assumptions and disregards real-life. If such a small amount of withdraws could cause wreak so much havoc, what will be the general public's reaction when the panic begins? At some point in the midst of a crisis, infamously known as a bank run, sentiment will change in a dramatic fashion. As the lines get longer it becomes "Give me it all please."

Recall the 5% rule: the approximate percentage of depositors required to shut down the financial system if they were to behave in this manner. There have been many recent polls indicating something quite alarming. The percentage polled who intend to withdraw ALL of their cash before 2000 ranges from 16-31%. Those who say "most" is even higher at 30-47%.

From these numbers it can be concluded that there will indeed be a popint only months away when a freeze on the bank accounts takes place. What is as yet unclear is the precise date it will occur, or the manner in which it is executed.

Presumably bankers and those in authority know the day of reckoning is quickly approaching and they are shaking in their boots.There is currently a well-orchestrated anti-bank run campaign underway, but this may only succeed in forestalling the inevitable.

Such efforts typically involve attempts to downplay the magnitude of Y2K or give happy-spinned reports about how well they're working on it. They will publicly compare Y2K to a storm that lasts a couple days. Anyone who says anything more than this status quo will be labeled an "enemy of the people" or a "doomsayer," etc. This is part of the ongoing blame-game directed at those seeking the truth to which the author un-apologetically attempts to do.

In the case of the fractional reserve banking system a lie has been told for too long. A lie that must now be painfully revealed.

-- Andy (2000EOD@prodigy.net), April 02, 1999.

It's clear that the banking situation is yet another illustration of "the tragedy of the commons", that what is best for the individual in the short run is bad for the public in the longer run.

No, I don't want to risk losing my money. I'd better take it all out of the bank, in case the bank fails. If enough people think like I do (and they should - the risk is there), the bank fails *because* individuals acted wisely. The bank can no longer loan money to my employer. I lose my job. But I have MY money, dammit!

Oh well, we really don't want banks, even if banks facilitate business, and jobs, and income. Banks are EVIL! If you don't believe me, join Andy at the Gold Eagle site. We all seem to prefer a bird in the hand (what money we already have) to two birds in the bush (future employment). Are we short-sighted? Hell no! We're PRUDENT!

-- Flint (flintc@mindspring.com), April 02, 1999.

Yes Flint it's all MY fault, what a selfish greedy bastard I am to want to take MY money out of the Banking system. My action will precipitate a worldwide calmity of monumental proportions - I don't know how I'm going to live with myself. The shame.

Get real Flint, don't be a maroon all your life, or a hypocrite for that matter. You yourself are stockpiling, you've said yourself on previous threads that you would be taking money out of the bank - you could be accused of the same. Do grow up - this is deadly serious pal, I'm not about to let my life savings go up the digital swannee.

The bankers and governments are going to reap what they have sown. It's that simple, and they know it. Hence the measures they are taking, war in Yugoslavia, Martial Law, Bank Holidays, turmoil.

PROBLEM / REACTION / SOLUTION.

Things will be so bad in a year's time the people will be clamouring for the gubbmint to come in with a rescue plan for their myopic asses.

You won't like the plan but you'll take it, much like a drowning man grasping at a straw.

Open your eyes Flint.

-- Andy (2000EOD@prodigy.net), April 02, 1999.

Andy:

I was trying to present a logical issue to which banks are subject. I'll try to make myself clearer.

Yes, I'm not going to have any money in the bank at rollover. Like you, I fear I'd lose it otherwise. Yes, I feel this is a wise strategy on the individual level. I genuinely consider it prudent *for myself*, and I can't be anyone else.

I also recognize that what is good for the individual isn't necessarily good for the public. Do you know what the "tragedy of the commons" is? If not, a little research might prove salutary.

-- Flint (flintc@mindspring.com), April 02, 1999.

WHAT A JOKE!!! You have to READ beyond the headline!

"the testing phase included most of the bank's computer applications"

"We will continue testing throughout the year but our critical internal systems have checked out."

"Haas said the bank still must prepare its non-critical systems for the millennium"

GIVE ME A BREAK!!!

-- @ (@@@.@), April 02, 1999.

Flint,

The ultimate "tragedy of the commons" is the shylock-fiat-shyster- banking system foisted on humanity, topped off in the USA by the ILLEGAL IRS and tax system.

Now that is ironic.

"If you don't believe me, join Andy at the Gold Eagle site. We all seem to prefer a bird in the hand (what money we already have) to two birds in the bush (future employment)."

I construe the above paragraph Flint as a rather personal dig at myself for having the brains to take the trouble to research the subject a little and educate myself on the scam perpetrated by the elite bankers, - so yeah, anyone who reads the Gold Eagle pieces is part of the ilk that will bring down civilisation when we withdraw OUR money from the system.

Gimme a break Flint.

-- Andy (2000EOD@prodigy.net), April 02, 1999.

Andy:

OK, you'll never understand the tragedy if you only have the 'brains' to do your research at the Gold Eagle site. This is like trying to find out if you're a good person by asking only your mother. This isn't research, this is prejudice reinforced by agreeable propaganda. You might be completely satisfied with it, and clearly you are. I suppose there are others with the 'brains' to restrict their y2k research to Koskinen's pronouncements. These people also hear only what they want to hear, and they are also satisfied.

I remember the old story of how scientists 'proved' that the bumblebee couldn't possibly fly. Faced with clear evidence that bumblebees fly, they decided maybe their 'proof' lacked something. But the fact that the fractional reserve system has been working for nearly 90 years doesn't slow down the Gold Eagle fanatics at all.

Andy, when observations collide with convictions, those who discard the observations and keep the convictions have a hard time finding disciples. With all due respect, I suggest research is done to *learn* and not to *ratify*.

Out of curiosity, I wonder how you ever find a bug in your code unless you start out with the realization that you *don't know* where it is. If you already have the *truth*, then 'research' is NOT what you're doing. Can you understand this?

-- Flint (flintc@mindspring.com), April 02, 1999.

"...working for 90 years..." - like a strangling vine.

Prepared

-- Prepared (wondering@mammon.now), April 02, 1999.

Prepared:

You're right, I forgot about that one. "Bumblebees don't fly. They can't, we proved it. It might *look* like flying, but it really isn't."

In deference to your principles, I trust you've never used a bank nor worked for any employer who has?

-- Flint (flintc@mindspring.com), April 02, 1999.

Flint! Leave your money in the till son! Your pal Paul Davis proved yesterday that "BANK RUNS CANNOT CAUSE BANK FAILURE"....

So Relax! Another good idea would be to ship some of your hard earned cash over to Tulip.com, er, Amazon.com -- they're looking really good these days!

-- a (a@a.a), April 02, 1999.

Sorry, 'a', my money goes under the mattress. Yes, I recognize this imperils the system, and that if everyone did it it's self- fulfilling. But nonetheless...

-- Flint (flintc@mindspring.com), April 02, 1999.

Here's a good article on the state of bank Y2K compliance overseas...

http://infoseek.go.com/Content?arn=a2258reuff-19990331&qt=% 22year+2000% 22+bug*+glitch*+y2k&sv=IS&lk=noframes&col=NX&kt=A&ak=news1486

Watchdog Warns Some Banks Not Ready For Y2K Bug

02:02 a.m. Apr 01, 1999 Eastern

BASLE, Switzerland (Reuters) - A global financial watchdog said Wednesday that many banks were still not prepared to tackle potential Year 2000 problems and much work remained to be done to avoid market disruption.

A survey conducted late last year by the Basle Committee on Banking Supervision's Year 2000 Task Force showed significant progress had been made in the financial community to address the inevitable challenges posed by the so-called millennium bug.

``However, there still remain several -- mostly smaller -- jurisdictions that are manifestly under-prepared for the Year 2000 and intensive efforts will be needed in the little time remaining to avoid the likelihood of disruption in those markets,'' a Basle Committee statement said.

[snip]

The committee said some banking supervisors, including most of those in major financial markets, were developing strategies for dealing with institutions unprepared for the event.

``However, more than half of the supervisors responding to the survey have not yet focused on developing such contingency plans, which suggests that more attention is needed on this aspect of the issue,'' it said.

The Basle Committee said it was proposing to organize and lead a series of intensive workshops for regional groups of supervisors in the emerging markets in April and May to help ensure adequate preparation for the Year 2000.

``Nonetheless, it is the banks themselves that must do the work, and much work remains to be done,'' the committee said.

``Financial institutions need to recognize that not only must they address the Year 2000 challenge effectively, but their counterparties, service providers and customers must also meet the Year 2000 challenge if business disruptions are to be avoided,'' it said.

The Basle Committee is a group of banking supervisory authorities which was established by the central bank governors of the Group of 10 in 1975. The Basle Committee established the Year 2000 Task Force in mid-1997.

[snip]

-- Kevin (mixesmusic@worldnet.att.net), April 02, 1999.

Well, if this is a poll, my money is staying in my bank.

Yes, I have emergency cash available. Always have, always will.

What will I do if my bank goes bankrupt? If this happens, I expect the FDIC to cover the deposits.

If the FDIC defaults? My guess is, if this ever does happen, I'll have much greater problems than having cash on hand. My guess is that that "cash" would be pretty much worthless then, anyway.

-- Hoffmeister (hoff_meister@my-dejanews.com), April 02, 1999.

Ed, that's excellent advise! Let me translate what you said... Basically what you are saying is to do some midnight gardening and bury your money in different places in your backyard. That way if your house burns down, you still have your money. But one very important thing to always remember.... Keep your mouth shut! LOOSE LIPS CAN SINK SHIPS!!

-- smitty (smitty@sandiego.com), April 03, 1999.

Good advice Ed.

Exactly what I plan to do - diversify - but leaving NONE in any financial institutions.

As for the following:-

"OK, you'll never understand the tragedy if you only have the 'brains' to do your research at the Gold Eagle site. This is like trying to find out if you're a good person by asking only your mother. This isn't research, this is prejudice reinforced by agreeable propaganda. You might be completely satisfied with it, and clearly you are. I suppose there are others with the 'brains' to restrict their y2k research to Koskinen's pronouncements. These people also hear only what they want to hear, and they are also satisfied."

Flint - what on earth gave you the idea that I solely peruse the Gold Eagle site - you are truly a moron of epic proportions to come to such a conclusion.

No offence intended.

-- Andy (2000EOD@prodigy.net), April 03, 1999.

Oh come on people! IF banks really were not going to be ready for Y2K, and come Jan 1 all of our money could turn to alphabet soup, why don't you think the bankers would TELL US and WARN US TO GET OUR MONEY OUT??? Of course they would!!! They are giving us GOOD NEWS HERE, and you can bank on it. (And if you really believe that, I have some King's New Improved Spanish Fly, has 10 times the effect on women that viagara has on men. Order yours today. Cash only, please.)

-- King of Spain (madrid@aol.com), April 04, 1999.

>> If enough people think like I do (and they should - the risk is there), the bank fails *because* individuals acted wisely. --Flint <<

No, actually, the bank fails because the system is flawed. Dual claims of ownership is the fatal flaw. The banks embraced this because it was advantageous to them, not because it made the world a safer, better place.

>>But the fact that the fractional reserve system has been working for nearly 90 years doesn't slow down the Gold Eagle fanatics at all. --Flint<<

The fact that a fatally flawed system works for some period of time is no proof of anything. Your arguement that it won't fail because it hasn't yet is meaningless. All it takes is sufficient stress. A serious cardiac patient can live for years with 95% blockage. That is, until he has to walk three blocks uphill because his wife forgot to fill the gas tank that morning. Did her actions kill him? No, his heart did that.

That the system hasn't experienced that stress in the past is why it has lasted 90 years. It must have seemed a sure bet for the bankers. I mean, what could ever happen that would motivate a sufficient number of people, WORLDWIDE to behave in an atypical fashion?

Regards,

Will Huett

-- Will Huett (willhuett@usa.net), April 04, 1999.

Earth calling Will Huett. Come in please.

"The fact that a fatally flawed system works for some period of time is no proof of anything. Your arguement that it won't fail because it hasn't yet is meaningless. All it takes is sufficient stress."

If a system works for a long time, it proves the system was workable for a long time. You skirt perilously close here to "if observations contradict convictions, discared the observations."

A system that works for 90 years, survived the Great Depression, a couple of world wars, and everything else that's been thrown at it is *damn* good indication that the system is robust. Not perfect, perhaps, but robust.

Any system will fail when subjected to sufficient stress. Life itself is fatally flawed - all living things die. Would you be unhappy if you lived for 90 years (and counting), surviving some very hard times in the process? Of do you spend your life bemoaning your lack of immortality?

Out of curiosity, let's say the fractional reserve system survives y2k as well. In that case, will you change your mind about it? Be honest.

-- Flint (flintc@mindspring.com), April 04, 1999.

>>If a system works for a long time, it proves the system was workable for a long time. You skirt perilously close here to "if observations contradict convictions, discared the observations." <<

Nonsense.

The system works until a relatively small percentage of the people that support the system stop supporting it at the same time. That is not a conviction, Flint, that is an objective fact.

>>A system that works for 90 years, survived the Great Depression, a couple of world wars, and everything else that's been thrown at it is *damn* good indication that the system is robust. Not perfect, perhaps, but robust.<<

You might enjoy studying the history of John Law and France after the death of Louis the XIV. He argued eloquently that a metal backed currency was insufficient for the modern state and essentially created modern paper currency. He was stupendously successful for a time... Nintey years really isn't very long, especially when the banking cabal became firmly established right before the beginning of the Pax Americana.

No paper money has ever survived. All fall prey to the ease in which they may be corrupted.

>>Out of curiosity, let's say the fractional reserve system survives y2k as well. In that case, will you change your mind about it? Be honest. >>

Fractional lending isn't the Great Evil in the system, Flint ( though it IS a fundamental weakness, as Y2K is demonstrating) it is the fact that the Federal Reserve is a private bank under private ownership. It goes beyond this forum to discuss, but suffice it to say that a free people can create their own currency, we do not need to borrow from the Fed and pay them interest. May I recomend a book to you called The Debt Virus by Jaikaran.

Regards,

Will Huett

-- Will Huett (willhuett@usa.net), April 04, 1999.

Will:

I pointed out that the system has withstood the considerable ravages of 90 years. This is an observation. You said:

"The system works until a relatively small percentage of the people that support the system stop supporting it at the same time. That is not a conviction, Flint, that is an objective fact."

No, Will, try maybe using a dictionary. What you state is a *hypothesis*. Not based on observation. Now, if that relatively small percentage did stop supporting the system and the system were to die, your hypothesis would become a *theory*. A theory is an attempt to explain observation. There may be other explanations. Without even any observation, you don't even have a theory.

Describing as an 'objective fact', a speculation about what *might* happen under vaguely defined circumstances, is pretty hilarious. This is like me saying it's an 'objective fact' that my wife is beautiful. I sincerely believe she is, but it remains pure opinion.

-- Flint (flintc@mindspring.com), April 04, 1999.

You're not worth the effort, Flint. By DEFINITION a fractional reserve system does not have the funds in reserve that it needs to meet all obligations. For your wife's sake, I hope your analysis of her is more clearly objective than your abilities here would suggest.

-- Will Huett (willhuett@usa.net), April 05, 1999.

Will,

Yes, I know that. According to Gary North, the problem with fractional reserve is that two parties have a legal claim on the same money -- the depositor and the borrower of that deposit. What North recommended was a system in which only one legal claim existed -- that of the borrower. The depositor (you and me) would have NO CLAIM on our deposit until such loan was repaid.

What I didn't understand was, how does this make us better off? So I go to the bank to take out my money, and the bank says, sorry, it's loaned out. You have NO RIGHT to it yet. Wait. And if the borrower goes broke and defaults, you have LOST your deposit. Too bad. I was confused by this. Would we be happier with that system?

-- Flint (flintc@mindspring.com), April 05, 1999.