Banks repair the Y2K bug, but still fear year-end panic

Sunday, April 11, 1999

By MICHAEL MARKOWITZ Staff Writer

A filmmaker phoned Valley National Bank Chairman Gerald Lipkin last week and offered him the chance to become technical adviser on a new movie about the Y2K bug.

The film's premise: sort of a "2001" meets "War of the Worlds" -- widespread computer failures on Jan. 1 create havoc and mayhem, plunging most of the world, including the banking system, into chaos.

Lipkin turned the offer down flat.

"I told him it's not going to happen that way, and I don't want to be party to anyone creating a panic," he said.

After months of toiling to eradicate the year 2000 computer bug, bankers are beginning to discover they face a new task -- getting out word that the problem is fixed in time to head off a panic by customers.

As of March 31, federal regulators said, 97 percent of the nation's banks were on track to eliminate the date-related computer glitch long before it could cause trouble. And one of those regulators, the Federal Deposit Insurance Corp., said last week that no banks or thrifts are expected to fail as a result of the Y2K bug.

So now, the government agencies that spent months warning financial institutions to fix and test their computer systems are pushing those banks and thrifts to put more effort into telling an increasingly nervous public to relax.

In response, banks are developing marketing campaigns to reinforce the message that Y2K will not cause a crisis. Some bankers are even weighing attention-getting stunts such as staying open on the New Year's Day holiday to reassure people.

A trade group, the American Bankers Association, even suggests that banks hold New Year's Eve parties in the vault to prove to customers that everything is OK.

Edward G. Boehne, president of the Federal Reserve Bank of Philadelphia, told the New Jersey Bankers Association at its convention late last month that banking is in better shape than most industries, but few people seem to believe it.

"Beyond the technical side of fixing the century date-change problem lies the issue of educating the public and the media about what the true situation is rather than letting anxiety build through lack of knowledge," Boehne said in a speech. "We should strive to give the public confidence that banks are on top of Y2K issues."

But even as bankers and their regulators become more confident about Y2K, there is evidence the public remains uneasy.

Ken Darby, a spokesman for Charlotte, N.C.-based First Union, the nation's sixth-largest bank, said calls to the bank's Y2K hot line have ballooned, from 1,000 in November to 7,000 in February. In the coming months, Darby said, the bank expects the number of calls to grow "exponentially."

In March, 55 percent of the respondents to a Gallup poll said they expect banking and accounting systems to fail on Jan. 1, compared with 40 percent for food and retail distribution systems. Sixty-six percent said they would get extra copies of their account balances and financial records.

And although only 15 percent said they would pull all their money out of the bank, twice that number said they plan to withdraw and stockpile cash.

David Beryl, a 28-year-old human resources manager from Edgewater, said he's not worried about the financial system collapsing, but he figures it can't hurt to have a little extra money in his pocket -- just in case.

"I'm going to act like it's any long weekend and take out some extra money in advance," he said. "It doesn't seem like there's going to be some doomsday thing, but there could be a small problem here or there."

All computers and chips that record only the last two digits of the year are vulnerable to the so-called year 2000 bug. Because these systems might read 2000 as 1900, they could fail to operate properly, causing all sorts of problems. Widespread publicity about the Y2K bug has heightened millennial anxiety among some people.

Banks are considered especially vulnerable to Y2K-related alarms because they keep very little of their deposits on hand as cash, using them instead as capital to lend or invest. If large numbers of depositors started demanding their money as the New Year approached, banks would be unable to satisfy them, possibly setting off a panic.

Although deposits are guaranteed by the FDIC up to $100,000, the insurance fund has less than $30 billion, not enough to cope with a nationwide panic.

To ease some of the burden on banks, the Federal Reserve has said it will be ready to pump an extra $50 billion into the banking system if necessary to cope with a surge in withdrawals.

In the meantime, bankers plan to do all they can to head off such a surge.

Barbara Harding, the chairwoman of Phillipsburg National Bank in Warren County, said that like most banks, hers has been keeping customers abreast of Y2K developments for months through mailings and brochures.

This week, however, she plans to meet with her senior managers, her Y2K coordinator, and her marketing people to come up with additional ideas.

"We're going to actually have a plan in place and some PR [public relations] going on a more aggressive basis," she said. "People are asking more questions now; customers are asking more questions. We're actually going through an education process with our staff now on how to talk to customers about these things."

The bankers association published a pamphlet last month entitled, "ABA's Y2K Instruction Booklet: Tips, Suggestions and Reminders on How to Survive the Millennium," in which the Washington-based organization suggested a few off-beat ideas for soothing Y2K anxiety.

Besides the vault party idea, the pamphlet recommends that bankers get clergy to talk about the Y2K issue from their pulpits and suggests that they forgo fees for extra copies of statements in December.

Darby, the First Union spokesman, said the bank plans to step up its direct mail on the topic and has begun asking its executives to discuss the issue whenever they make speeches before business and community groups.

Lipkin, of Wayne-based Valley National, said he is going to ask employees to avoid making vacation plans around the end of the year so the bank can assure customers that staff is available in the event of a problem.

But after all the effort regulators put into making sure banks took their Y2K responsibilities seriously, Lipkin said it may be tough to persuade some people that the danger is largely past.

"There was a lot more hype than reality [about the Y2K bug] but sometimes you have to have a lot of people screaming before they do their jobs," he said. "I'm not saying there isn't the potential for a problem, but the potential is diminished day-by-day."

-- Norm (nwo@hotmail.com), April 12, 1999

Answers

Poor Norm ... Read this. I suppose we're just so far ahead of, and disconnected to, the Bank Of London we don't have to worry:

****

Headaches start as the bug bears down on banks

The Cost so far

Will the dawning of the year 2000 bring financial chaos? This week the man who should know raised just that spectre.

Banking industry regulators do not go in for scare-mongering. But with a few carefully chosen words, Michael Foot has sent shock waves reverberating round the City and sent savers scurrying for safety.

The quiet, bespectacled man from the Financial Services Authority admitted that 12 large financial institutions are so far behind with their preparations to cope with the millennium bug that they could pose a serious risk to their customers and the markets. He is so worried by their potential to do damage that he is threatening to close them down.

This grim warning is the first real admission from the City of the potential horrors that lie in store when the year changes. Until now, the Bank of England has insisted that Britain's financial institutions were coping with the bug. That is what the institutions themselves maintained. Now it is clear that the truth is very different. And so intertwined are the various financial institutions that if one fails, the entire system may be put at risk. "The financial industry is like a house of cards," shuddered one insider yesterday. "If one business founders, the others feel it."

Suddenly, those individuals who have insisted that they will be withdrawing all their cash from the bank before the end of the year do not seem quite so misguided. The prospect of the millennium bug eating your savings may be more than just the nightmare of overactive imaginations. At a high-powered millennium meeting in Washington recently, delegates were stunned to hear Henry Kissinger announce that he intended to withdraw all his money from the bank as 2000 nears. Mr Foot's statement this week has fuelled fears that lesser mortals will follow the former United States Secretary of State's lead, precipitating a dangerous run on the banks.

There are fears that computer breakdown will wipe out details of people's investments, transfer sums to the wrong accounts and generally put the finances of individuals and corporations in jeopardy. The FSA is insistent that companies must have full back-up systems in case of a massive computer breakdown and it is by no means confident that all yet do.

It was inevitable that a few small businesses would fail to prepare adequately for the arrival of the new millennium. But Mr Foot was not talking about small businesses. What was so stunning about his revelations was that they related to 12 of the most important 160 businesses in the financial services sector. These, on the regulator's own definition, are "high-impact" companies, banks and insurers whose failure to be bug-proof would have serious consequences not just for customers but for the entire financial markets.

Yet we are left to guess the identity of the dirty dozen. Mr Foot dare not name and shame them for fear of legal action. His secrecy led to frantic speculation in the City as bankers tried to identify the culprits. There were equally frantic efforts to insist that they were not the guilty ones. The favourite line from many British banks was that all the 12 offenders are foreign-owned. That, says the Financial Services Authority, is certainly not the case.

At Action 2000, the Government's anti-bug unit, the director-general, Gwynneth Flower, is trying to play down fears of financial disaster. The former army major proclaimed: "If I have confidence in any sector in Britain it is the banking sector. But it would be foolish to say that everything in the garden is rosy."

She believes that the financial services industry has spent more time and effort dealing with the bug than any other industry and that Britain is ahead of any other country in seeking to cope with the problem.

Robin Guenier, the man whom the last Government first asked to help the country to cope with the bug, is less sanguine than Ms Flower. He was widely derided as the Cassandra of the millennium because of the dreadful picture he painted of national chaos. Now his predictions are coming dangerously close to being borne out. He says: "If the financial services industry is leading Britain, then that does not say much for the rest. And if Britain is leading the world, then heaven help us."

The international nature of the financial services industry does exaggerate the risks it faces for much of the rest of the world certainly has lagged behind the UK in year 2000 preparations. Abbey National, for instance, confident that its own systems are compliant, has a small operation in France which was recently checked for compliance under the French Government's criteria. It was, said the Abbey, "one of the few businesses to meet the deadline". There is widespread scepticism in the City about the ability of many European institutions to address the problem adequately.

The potential computer problems have been compounded for the financial services industry by the introduction of the euro. Many were deflected from the year 2000 issue as they struggled to prepare for the new currency. Now that they need to finish preparing for the end of the millennium, they cannot find the people to do the job.

Mike Hudgell, marketing director of Gresham Computing, which specialises in testing IT systems, says: "A lot of firms have left it too late to do their year 2000 work. They know what needs to be done but simply do not have enough time to do it and test that it will work. Almost every major IT project ends up being delivered late. This is the one that cannot be."

Robin Guenier believes that the first casualties could begin to appear very soon. As many financial companies operate an accounting year that runs from April to March, their software will soon be covering the period to March 31, 2000, triggering the bug's early appearance.

Mr Guenier does not sound like a scaremonger to Nick Bottomley, of the Swiss banking software group Fin'Objects. "I have never heard of a firm that has admitted it has a year 2000 problem yet everyone in the City has it and, up till now, they have been hiding it," he says. He argues that companies have tried to take shortcuts and the results could be disastrous. Commerzbank, one of Fin'Objects's clients, was forced to ditch virtually all its computers and start again with a new system to cope with the euro and year 2000.

Mr Bottomley fears that the 12 companies that feature on Mr Foot's list are only the most visible offenders. "The others, who have been hiding their problems, will be found out later," he says.

That is why he will be removing all the cash from his bank accounts before the century ends.

-- Jon Johnson (narnia4@usa.net), April 12, 1999.

Link at: www.sunday-times.co.uk

March20, 1999.

-- Jon Johnson (narnia4@usa.net), April 12, 1999.

Norm? How much time do you spend with your hands under the covers? Do you have an opinon on anything?

-- SCOTTY (BLehman202@aol.com), April 12, 1999.

Jeez Norm, do you work for the FDIC? You have been posting an awful lot of good-news bank stories lately. The banks are recognized leaders in the war on Y2K. I truly hope that they all make it, and all the central banks and clearing houses, and all the data exchanges and communications systems. But I am still going to have a good supply of MY hard cash on hand, just in case things like power keep the Mac machines down, and the bank doors closed for a while. <:)=

-- Sysman (y2kboard@yahoo.com), April 12, 1999.

Don't get me started on Banking Norm :)

Can you say "imported data"?

-- Andy (2000EOD@prodigy.net), April 12, 1999.

Norm = Greenspan?

-- lisa (oh@my.god), April 12, 1999.

Great news Norm! Now you can tell your pollyanna brethren Flint to keep his money in the bank. LOL

-- a (a@a.a), April 12, 1999.

It's almost as though banks think they are alone in the world and no other industry will be impacted by Y2K.

... "banking is in better shape than most industries" ...

If we're okay, you're okay.

Right.

How about ... if "some" of our customers are not okay, then we may have problems, coming from directions other than, where we "think," our obvious problems are.

But, a good PR firm may still help the banks to help people in NOT connecting-the-dots.

Or maybe it's too late.

Maybe, just maybe, the public is smarter than "they" thought. Maybe they even recognize spin when they see it?

Details, details.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), April 12, 1999.

The banks may be developing marketing campaigns to reinforce the message that Y2K will not cause a crisis,but I suspect many are preparing for the worse. My daughters best friend is head teller at a local bank,and she was told at some point they may have to lock the doors, and possibly face angry mobs with baseball bats etc. This is at a bank in Chattanooga,Tn. Sounds like trouble to me,compliant or not.

-- Carol Ann (JCclass69@aol.com), April 12, 1999.

no amount of preparation will matter, if the banks are linked with outside sources that are not compliant, or with the 1% of the banks that "don't make it" Simple odds tell me not all will make it, and simple logic tells me that their will be failures. The interdependancy.....what happens when bad info starts floating from bank to bank...? I wouldn't want to bet on compliancy or a bump in the road scenario. I think it is gonna happen about October.

-- rick shade (Rickoshade@aol.com), April 12, 1999.