Thursday June 3 4:04 PM ET

FDIC Says U.S. Banks Beating Y2K Bug

WASHINGTON (Reuters) - Only a few U.S. banks are lagging in their Year 2000 preparations, but those that are need to keep accessible backup copies of key customer data, the Federal Deposit Insurance Corporation said Thursday.

Just 205 of the 10,400 banks insured by the FDIC are now rated less than satisfactory in regard to their Y2K compliance, down from 357 at the end of March, the agency said.

The Year 2000, or Y2K, problem arises because many older computers record dates using only the last two digits of the year. If left uncorrected, such systems could treat the year 2000 as the year 1900, generating errors or systems crashes.

``Banking regulators have been working with financial institutions for two years to prepare for the century date change,'' FDIC Chairwoman Donna Tanoue said in a statement. ``As a result we expect virtually all financial institutions to be prepared for the transition.''

Nonetheless, the agency said that ``out of an overabundance of caution,'' it wanted all institutions that did not achieve a satisfactory Y2K rating by July 31 to keep computer copies of key deposit and loan information in a standardized format.

Banks routinely keep backup copies of the data stored in their computer systems but often record different information and in different ways. The FDIC interim rule, which would come into effect after a 30-day comment period, sets out what information should be backed up and how it should be stored.

``We want to at least have core information on hand packaged in a way that we can use, so that if we need to get customers their money right away we can do it,'' an FDIC spokesman said.

The information would include items like account status, branch, account and tax identification numbers, customer names and addresses, account balances and accrued interest, he said.

The additional measures would not be particularly burdensome or expensive for the small number of banks that might be affected, the spokesman said. The FDIC estimates the cost of compliance at around $17,500 per bank.

-- Norm (nwo@hotmail.com), June 03, 1999

Answers

Subject:	Why Bank Failure Is Absolutely Inevitable
Date:	1999/06/02
Author:	fedinfo <fedinfo@halifax.com>
	Posting History

This is from the MONEYCHANGER.   * * * * * * * * * * * *   Scrambling to figure out how much currency and coin exists in the United States, I bumped into some very interesting figures. After all, there's no reason to worry about stocking up on cash now in the event of a Y2K bank failure if the system is stuffed full of cash.   I am frequently treated pleasure of being derided and ridiculed for my warnings about the US banking system. I keep telling folks that the system is inherently bankrupt, and hence liable to collapse at any time. Since three generations have passed since the Federal Reserve system was fixed like an evil incubus on the back of America and nothing bad has happened (other than two world wars, two depressions, the death of family farming, and a Federal debt the size of Montana, Idaho, and Utah combined), they just laugh back at me. "Never in our lifetimes have the banks been in trouble. You're a Nervous Nelly."   American banks operate on a fractional reserve system. When a customer deposits F$100 into his savings account, the bank does not pull down an envelope, write the depositor's name on it, stick in the F$100 bill, and place the envelope on a shelf in the vault. Rather, they credit the depositor's account and get busy loaning out his deposit to borrowers. The banksters know that not every depositor will ask for his money at the same time, so they only need to keep a fraction of his deposit on reserve. Most people think this system is okay.   Until they find out how tiny the reserves are.   Even people who understand the system don't seem to grasp the reserves' minuteness, measured against the whole system. If you ask them, they typically guess that banks must keep a 10% reserve, perhaps 20%, against deposits.   That isn't even close.   THE REAL RESERVE REQUIREMENT   I love doing this stuff, so I called a helpful economist at the St. Louis Federal Reserve Bank, and also drew some figures from the St. Louis Fed's web site at . To pinpoint the reserve requirement for the banking system as a whole, I wanted to know (1) total required reserves, and (2) total bank deposits. By dividing (1) by (2), I could arrive at the total reserve requirement as a percentage of deposits.   Notice that I am a really fair fellow. I am not twisting the banker's toes by using a broad definition of money supply that includes money market funds and pie in the sky stuff like that. Oh, no, even bankers get a fair shake at the Moneychanger. I used the narrow definition of money supply. Watch.   Total Bank Deposits (billions of bucks)   Demand deposits: 407.40   Other M1 checkable deposits: 245.60   Savings & time deposits (CDs) of banks & thrifts from M2 & M32: 936.70   Total Bank Deposits: 3,589.70   The helpful economist informed me that total required reserves on April 10, 1998 for all banks was $47.403 billion. Now we can calculate the system reserve requirement as $47.403 / $3,589.70 = 1.3205%.   What meaneth this abstruse cipher? Well, if every depositor lined up at all the banks tomorrow and demanded all his money, 1.32% of the people would get all their money. On the other hand, all the people could get $1.32 for every $100 they had deposited.   This I call a fragile, inherently bankrupt, and calamity-prone system. To make things shakier, I keep reading Y2K articles suggesting that depositors withdraw a little extra cash, just in case Y2K takes down the banking system. Figure it out. With a measly 1.32% reserve requirement no large portion of depositors could withdraw cash from the banks without creating a panic and bank run. If only 2% of depositors withdrew all their money, the banks would fail.   If you ever plan to get money out of the bank, you better do it now, while the getting is good. In a bank run, the federal government (guardian angel and loyal slave of the banks) would most certainly declare a moratorium on withdrawals.   More and more people are hearing the recommendation to "withdraw a little extra cash out of the banks" to prepare for Y2K. If as many as 1.32% of bank depositors take their advice and withdraw all their money, the banks will close their doors.   Y2K threatens to disrupt the electronic bank payments system. This system contributes about 90% of the US money supply. Without it, 10% of the money supply (the cash & coin) must take over the work of the other 90%.   Conclusion: Withdraw and stockpile some cash now. Shoot for at least three months' cash requirements. Don't wait. Start now.       ==================   Like I have said all along....your fault, my fault, nobody's fault at all....the banks WILL cave in. If you are so stupid as to think that less than 1.32% of the population will demand substantial quantities of dough, then you are brain dead. What their reasons are, do not matter.   The FACT remains that the system is inherently flawed and unstable and the only ones left alive will be the ones who got out first.   Leave the banks shills, like mcisaac to shout from the rooftops that banks are OK. They are NOT. Their own compliance is moot, one way or the other. They will inevitably fail.   Last one out is a rotten egg? Nope. Everyone but the FIRST ones out are ALL rotten eggs.   http:// www.the-moneychanger.com/html/it_s_funny_money.h... -- Paul Milne If you live within five miles of a 7-11, you're toast. Sent via Deja.com http://www.deja.com/ Share what you know. Learn what you don't.

-- a (a@a.a), June 03, 1999.

Note to newbies : please look for words in the headlines that indicate the REAL condition. BEATING: not done BEAT: finished That includes you too, Norm

-- Will continue (farming@home.com), June 03, 1999.

The link to "The Moneychanger" site provided in Mr. Milne's posting is incomplete. Here's a link to the article he cites: It's Funny Money

-- Mac (sneak@lurk.hid), June 03, 1999.

Wait. I'm a little confused by that calculation. You treated all deposits as if they were demand deposits, didn't you? I mean, not all bank depositors have a right (or expectation) that they can withdraw their funds immediately. That's the point behind 30-, 60-, 90-day (et al.) CDs, right?

Did I miss something?

-- Jeff Donohue (Jeff_Donohue@hotmail.com), June 03, 1999.

Jeff: Although not considered a demand deposit, you can cash out a CD at any time. You forfeit all interest accrued and some institutions require that you pay a service fee. There is usually also a processing delay of several days to a couple weeks.

-- a (a@a.a), June 03, 1999.