Euro almost collapsed British banks last January

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http://www.newsunlimited.co.uk/The_Paper/Daily/Story/0,3604,50176,00.html

Euro launch took British banking to brink of chaos

Investigation: Scramble for billions during two weeks of trading gridlock

By Lisa Buckingham and Jill Treanor Friday May 14, 1999

Britain's banking system repeatedly came within hours of gridlock when the euro began trading at the start of the year, senior industry sources have revealed belatedly. Chaos threatened to engulf the payments systems between Europe's banks and only the deployment of emergency plans devised by a group of more than 30 of the region's largest banks - known as the Heathrow Group, after the London airport location used for meetings - ensured that problems remained largely under control.

The existence of 20 different payments systems meant money being transferred from one country to another often ended up in the wrong place. That meant the receiving bank might have been short of funds to pay other debts and any hint of default would be regarded as disastrous.

At the time the euro was launched, the investment bank Warburg Dillon Read warned that at least one European institution had made the same payment five times over, totalling #400m.

Congestion in the system also meant some banks received huge inflows of funds last thing in the day and were unable to invest them in the interbank market so that large interest payments were lost. It forced many banks to borrow, expensively, billions of euros which are not usually necessary. This unprecedented scale of overnight borrowing lasted for more than two weeks.

Money did not go missing, one senior source said: 'The system was never out of balance in terms of total liquidity - it was just that it wasn't quite where it should have been.' Traditionally a payment instruction in German marks would clear in Frankfurt while one in French francs would clear in Paris: The multinational nature of the euro ended this. Another senior banker said the settlement systems designed for the launch of the euro had 'suffered a degree of indigestion' but, he added, most of the problems had been overcome.

A complex web of negotiations is under way between major British and continental lenders seeking to recoup interest lost when payments were not made on time or additional interest had to be paid. The Heathrow Group devised a 'no fault' compensation system which is being put into operation.

'Some banks had to go out and find funding of billions of euros to ensure they could close their positions at the end of the day,' said one executive. Particular problems were experienced by some banking groups in Germany, France, Holland and Austria.

'When it all started going belly-up at the beginning of euro trading, the banks in the Heathrow Group got things moving. There was a danger of payments gridlock but we worked together to try to avoid these difficulties,' recalls one of the executives involved. 'It was a very, very valuable group and we need something like that worldwide to cope with the Year 2000 problem.' The Bank of England - whose role in smoothing the launch of the euro was yesterday described by one banker as 'superb' - has attempted to play down the market's difficulties for fear of sparking a cash crunch for the banks and fuelling alarms about what might happen to the system at the millennium.

Bank executives know the financial system is dependent on consumer and business confidence and that anything which damages it could undermine the sector's prosperity.

-- Mron (mronmai@hotmail.com), May 15, 1999

Answers

I knew he could do it......a one and a two.....what's next?

-- Expecting Chaos (expectingchaos@fory2k.com), May 15, 1999.

Everybody who visits this Yourdon Forum also checks with the Gary North website. Mron should know that and be aware of that. There is no need to give us a double dose of the Y2K news!

-- why two kay (whytwo@kay.com), May 15, 1999.

I never go to the GN forum. Never. Why would I provide eyeballs to a Christian reconstructionist who believes that Gay men should be executed because of their orientation?

-- Fag (fag@hatenorth.com), May 15, 1999.

Good point Fag but I would if I was you to see what he was up to.

-- Andy (2000EOD@prodigy.net), May 15, 1999.

I want to see what Flint and Hoff have to say about this :)

-- Andy (2000EOD@prodigy.net), May 15, 1999.


Sounds like they expected problems (entirely reasonable), they had people standing by and contingency plans just in case (as we'll have at rollover), and this proved sufficient.

We cannot have any idea what *might* have happened in case of 'gridlock', whatever they mean by that. My guess (purely a guess) is that actual customers might have been inconvenienced for a while, with unknown repercussions. However, 'money did not go missing' and 'the system was never out of balance.'

About once a month, I get called to put out a fire on the assembly line, with someone standing at my shoulder saying "This is costing us $6000 a second". Not fun, but usually not that hard either. Fortunately.

I think the main point here is that the Euro switchover, which was a Big Deal to the affected parties and exercised virtually all the Euro code, did NOT rise above a manageable level, though there were tense moments. I expect y2k will be considerably worse, and become unmanageable here and there. I've already written several times that I expect macroeconomic effects from this, and a recovery period lasting several years. I haven't yet seen any reason to change my mind.

-- Flint (flintc@mindspring.com), May 15, 1999.


flint, this is something some of us tend to forget among your other posts.

Chuck

-- chuck, a Night Driver (rienzoo@en.com), May 15, 1999.


I disagree Flint.

Sounds like a major balls-up to me.

Gridlock. Deadly embrace. Funds out of whack. Interest missing. Funds paid 5 times. The receiving bank ACCEPTING FIVE PAYMENTS!!! i.e. the incoming payment, which was bogus (i.e. wrong, not intended etc.), passed all protocols and was accepted. The sending bank had enough funds in it's account so it sent the bogus money.

This is what I've been trying to get over to you and Hoff, to no avail.

BAD DATA.

SLOSHING AROUND THE SYSTEM.

CAUSING FURTHER DATABASE CORRUPTION ASTIME GOES BY>

The only reason the whole introduction of the EURO didn't go belly-up in the UK, was now apparently due to this "Heathrow Group" of 30 individuals, with telephones, pagers, faxes, support staff, electricity, time and a full infrastructure in place.

I expect there were similar HIT TEAMS throughout Europe desperately bailing.

And it still took two weeks (so they say) to straighten everything out.

I still don't believe it's a success from what I've been hearing. It may never be fully implemented at all at this rate.

Well I for one went on record on csy2k and maybe even here saying that the EURO introduction was not all plain sailing - e.g. that mini- riot in France, other snippets from insiders on csy2k.

So what do we have here?

Essentially a TOTAL COVER UP.

THIS IS WHAT I'VE BEEN SAYING ABOUT BANKERS ALL ALONG - THEY ARE QUITE SIMPLY LYING THROUGH THEIR TEETH ABOUT THE POSSIBLE EFFECTS OF Y2K ON THEIR SYSTEMS. THE DANGER IS VERY VERY REAL.

5 months later and an edited version of the truth now comes out.

This DOES NOT BODE WELL FOR ROLLOVER.

Get your money out of the banks, they are going to hose up monumentally, the writing is on the wall folks, you're loss if you don't.

-- Andy (2000EOD@prodigy.net), May 15, 1999.


From uncle Gazza...

This report from THE GUARDIAN (May 14) is a shocker. Coming from one of the most liberal mainstream newspapers in Britain, I have no reason to think this story is not true. It is not a Fleet Street newspaper known for sensationalism.

We were told that the Euro conversion was smooth. There was nothing to it. Well, there was a great deal to it.

The system came perilously close to gridlock. That is the great banking threat of y2k next year, what Greenspan has called cascading cross defaults.

In 2000, there will be banks around the world that are caught in the inter-bank defaults. There is no agency rich enough to guarantee liquidity in a meltdown. The banking world has brought the division of labor to a crisis point. If the bankers don't get the system across the chasm, chaos will result. This article indicates that they know this. So does the parallel article published the same day.

The "Heathrow Group" of 30 British banks saved the payments system. No wonder that one banker has said, "we need something like that worldwide to cope with the Year 2000 problem." But we don't have it.

-- Andy (2000EOD@prodigy.net), May 16, 1999.


To Nut:

TOTAL COVERUP ...

Of course, that's why it appeared in the British media; because it was covered up ... they did a great job with the coverup, didn't they? I mean, the principles even talked to the press and all that ...

(Whew.)

To everyone else, the operative paragraph is this one:

Money did not go missing, one senior source said: 'The system was never out of balance in terms of total liquidity ... the systems ... 'suffered a degree of indigestion' but ... most of the problems had been overcome.

Which is exactly what I said/predicted at my Web site: that there would be the usual "growing pains" associated with a new currency (do you think this is the first time something like this has happened?), but that they'd work around it.

The Collapse predicted by Capers Jones and Gary North did not occur. That's the bottom line.

(Remember, they didn't just predict problems, they predicted collapse -- Europe's economy grinding to a halt. Didn't happen.)

(They were WRONG.)

Hmm. Interesting, isn't it, that a handful of people could head off all that chaos with some phone calls? I though that, if the computers failed, they'd be overwhelmed, and wouldn't be able to do anything to straighten it out ...? :)

-- Stephen M. Poole, CET (smpoole7@bellsouth.net), May 16, 1999.



"TOTAL COVERUP ...

Of course, that's why it appeared in the British media; because it was covered up ... they did a great job with the coverup, didn't they? I mean, the principles even talked to the press and all that ...

(Whew.)"

******* I call anything of this magnitude and seriousness that takes FIVE MONTHS to surface a class A, bona fide COVER UP. It only came to light via diligent reporting by a quality British newspaper journalsit. The wars that went on on both csy2k and this forum after the EURO rollout can now be PUT INTO PERSPECTIVE. Furthermore, we only NOW have this information - what else is out there that is still to be discovered on this debacle. Remember this is just phase one of the EURO, there is a long long way to go before full implementation. I don't think it will ever happen. *******

"To everyone else, the operative paragraph is this one:

Money did not go missing, one senior source said: 'The system was never out of balance in terms of total liquidity ... the systems ... 'suffered a degree of indigestion' but ... most of the problems had been overcome.

Which is exactly what I said/predicted at my Web site: that there would be the usual "growing pains" associated with a new currency (do you think this is the first time something like this has happened?), but that they'd work around it.

The Collapse predicted by Capers Jones and Gary North did not occur. That's the bottom line.

(Remember, they didn't just predict problems, they predicted collapse -- Europe's economy grinding to a halt. Didn't happen.)

(They were WRONG.)

Hmm. Interesting, isn't it, that a handful of people could head off all that chaos with some phone calls? I though that, if the computers failed, they'd be overwhelmed, and wouldn't be able to do anything to straighten it out ...? :)"

******* poole, the more you say on subjects that you know little or nothing about, the more foolish and moronic you prove yourself to be. There is talk, I bolded it above, of similar teams being put into place for y2k. Good luck. At rollover, it will be like a tsunami compared to the EURO's gentle lapping on a lake shore. *******

-- Andy (2000EOD@prodigy.net), May 16, 1999.


Taking the article at face value, which seems reasonable at this time, it is more illustrative of the powerful dynamic to "cover up" stuff until/if it is useful to let it out than of anything else. How many similar Euro near-debacles were/are occurring? Maybe none. Maybe one more. Maybe fifty.

Since Greenspan acknowledged that ONE highly leveraged derivative fund had the potential to cause market melt-down (not a perfect analogy, banks are not markets), we can't predict the ripple effects of Y2K-induced melt-downs (no, Poole, it's NOT like "banks going out of business all the time.")

What this article says by inference, to repeat, is that the jury is still out on the Euro and, perhaps more important, on the continuing Y2K resources that are being diverted to keep the Euro process up. It takes months for bugs to manifest effects and for the impacts on other systems to become known: what is being covered up about that? Again, maybe nothing. Maybe a little. Maybe a lot.

That is so far from paranoia as to be a trite statement.

As for Y2K, "prepare for the worst, hope for the best." Take enough cash out for yourself (some thousands) that you are protected. As Senator Bennett said, "it's your money." Encourage those you love to do the same.

-- BigDog (BigDog@duffer.com), May 16, 1999.


I think we could get rid of some of these trolls if the forum moderator would allow the software to simply display the poster's isp identification number. I think the number of illogical and silly posts would diminish rapidly.

-- Anony Smithe (Anony@smi.the), May 16, 1999.

I have pondered the bank issue. I work with many on their computer systems and actually feel quite confident about them. I am more concerned on the small businesses on which they depend.

Not my point though. I have borrowed money for my company many times. And, signed away my first born each time. This might be a time to look at it from the depositors side.

When your banker assures you your money is safe, have him or her sign a personal guarantee putting you first in line for all of their personnal assets ( as they would ask you to do when your borrow money). It would be interesting to see their willingness to do so since "there is no chance their bank could fail".

Might put things in perspective for them.

-- whk (w_h_k@hotmail.com), May 16, 1999.


"Bank executives know the financial system is dependent on consumer and business confidence and that anything which damages it could undermine the sector's prosperity."

And that's why it's been covered up and only now dribbled out with assurances ... they don't want the weeples adding 2 + 2 = 4 ... banks are inventing a new PR math to cobble thru Y2K, but the PR math is vapormath and DOES NOT ADD UP!

xxxxxxx xxxxxxx xxxxxxx xxxxxxx xxxxxx

-- Leska (allaha@earthlink.net), May 16, 1999.



The bankers and governments would do a "cover up?" Golly gee, who'da thunk it?

-- A (A@AisA.com), May 16, 1999.

And so, a couple of reporters, investigate, find a few scary failures, and write an article with an inflammatory headline to grab attention and sell papers. Now THERE'S something we've never seen in journalism before. :)

This is no different from the Peach Bottom Nuke incident (which was also blown all out of proportion by Doomers). Some systems failed, they worked around them, and nothing really bad happened.

In this case, we have some bankers annoyed because they lost some interest on "overnights" and had to borrow money to cover a few late transfers. Hardly a collapse.

Capers Jones is using this as vindication of his prediction. Maybe he can get away with it, but Gary North can't. His prediction was quite specific:

[European] bankers have refused to allocate programming resources to y2k because the software revisions demanded by the Euro could not be met if programmers worked on y2k.

Result: Europe will miss both deadlines.

The deadline is fixed: Jan. 1, 1999. It has been trumpeted for years. It has been fundamental to one of the great public relations campaigns of all time. But Europe will not make this deadline. The world will know on Jan. 4.

They DID make the deadline. They had some problems (which most of us who know da bidness fully expected), and they worked around them.

Another case of Doomlits make mountains out of molehills in desperation.

-- Stephen M. Poole, CET (smpoole7@bellsouth.net), May 16, 1999.


poole, you are incapable of digesting serious evidence like this, THAT is quite evident.

Yep, it's all a plot to sell more newspapers.

Have you ever read The Guardian? Nope. You have no clue.

Did the Heathrow group announce a press conference to tell the world how close England came to EURO-financial chaos? Nope.

You are not fooling anyone poole.

It was quite simply covered up, and only came to light through diligent journalism.

Stay tuned - there will be more on this story.

-- Andy (2000EOD@prodigy.net), May 16, 1999.


Andy:

No doubt they are covering up all they can. No doubt there is quite a bit to cover up, but how could we know? No organization I know of advertises their screwups; they all keep them quiet if possible.

Poole's point is that no customers were inconvenienced by all these problems, covered up or not. And to this extent, Poole is correct. We've all dodged a few bullets over the course of time, and we know that sometimes good fortune smiles on us and sometimes it doesn't.

I can't accept Poole's argument that if we have survived the Euro conversion as well as we have, we'll survive y2k just as well. Nor can I accept your argument that just because at least one Euro meltdown was narrowly avoided, therefore y2k can't be managed. These are apples and oranges, and generalizing about one based on the success or problems of the other isn't very useful.

-- Flint (flintc@mindspring.com), May 16, 1999.


Flint,

I accept your position - but read the sentence that I bolded, and digest it. this is from the horses mouth, a guy in the trenches who fought to avoid financial collapse five months ago. He says that there is bo organisation to coordinate things at y2k rollover. I have said the same thing many many times.

"Poole's point is that no customers were inconvenienced by all these problems, covered up or not. And to this extent, Poole is correct. We've all dodged a few bullets over the course of time, and we know that sometimes good fortune smiles on us and sometimes it doesn't."

Correctimundo. JQP does NOT use the EURO yet in the paper currency sense. I believe a few customers rioted in Marseilles. That's all apparently.

However, the EURO is not legal tender yet in that there are no countries yet using the new Euro-currencies. this was JUST a partial implementation. There is an awful long way to go. Programmers are still working on this artificially created "problem" - wasting precious resources that could be diverted to, for example, y2k remediation in Italy and Germany. As i understand it the initial implementation of the EURO is confined to major interbank transfers of this currency. It is a pimple on an elephant's behind compared to the y2k rollover.

-- Andy (2000EOD@prodigy.net), May 16, 1999.


From Martin A. Armstrong - Princeton Economics Review

OFFICIAL - THE EURO HAS FAILED

the current y2k inflation thread...

[snip]

The more important issue behind the Euro weakness is the dirty little secret that is being kept from the general media at all costs - the Euro clearing system still does NOT work! Merchants who take Visa or Master Card normally receive instantaneous cash when they deposit your transaction with their bank. This is now true for all currencies EXCEPT the Euro! Euro credit cards are taking days to clear and as such the Merchants have been the first to feel the effects of a clearing system that still does not work. Between banks, all currency transactions settle at the end of every day. Euro settlements are also taking days. Banks in London are putting Euro checks on a 4-week clearing status. The net effect, many are starting to discount the Euro in order to accept it. Even American Express has issued only 5,000 Euro based cards. This is not such a good story for a currency that was going to knock the dollar off this planet. Most central banks are still unofficially not accepting Euros as a reserve currency, which has been told to us on a confidential basis. If publicly confronted on this issue, everyone would naturally deny it, but the failure of the Euro has been expressed in its near perfect swan dive since January 1st.

The Europeans are having extreme difficulty solving the problems of the Euro. Most computers cannot calculate fractions of a currency and therein lines a far worse problem than merely Y2K. China's work around for Y2K is to simply turn their computers back 20 years. That trick will work, but calculating fractions of a currency remains impossible when such functionality never before existed. For this reason, your taxes in Germany are still payable in DMarks - not Euros.

[end snip]

You bleedin' maroon poole you have no freakin' clue...

-- Andy (2000EOD@prodigy.net), May 17, 1999.


Link here

http://www.greenspun.com/bboard/q-and-a-fetch-msg.tcl?msg_id=000q05

-- Andy (2000EOD@prodigy.net), May 17, 1999.


Flint, Hoff,

where are you?

what say you now???

-- Andy (2000EOD@prodigy.net), May 17, 1999.


Andy, I don't know what Flint and Hoff say, but I say you're still a nut.

Or, maybe an artificial intelligence.

-- Stephen M. Poole, CET (smpoole7@bellsouth.net), May 17, 1999.


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