Banking Industry Is the Furthest Behind Comment: The standard media analysis is that the banking industry is the most advanced of all the industries in y2k compliance. This is incorrect. It is the furthest behind.

But haven't the banks spent more money than any other? Probably. Then aren't they the furthest ahead? No. Why not? Here's why.

1. It has the oldest code, except for the U.S. military.

2. It has the most widely distributed code -- from central banks to depositors' accounts -- except for telecommunications.

3. It is an entirely digital industry -- numbers constitute the whole game. Even the prices of the assets used to collateralize the industry's debts to depositors are denominated in terms of the industry's own numbers (money). If the numbers collapse as banks fail, so do the market prices of the collateralized assets -- but not the debts to depositors.

4. The number of zeros in the industry's transactions is enormous, so that small percentage errors with other people's money can bankrupt the institutions that made the error.

5. It is the most international of all industries.

6. Of the banks in 190 "nations," most have done very little and started late.

7. Bad data are transmitted from one compurer through others, which in turn pass along the errors.

8. It is fractionally reserved: vast short-term debt to depositors, secured by illiquid assets.

9. It is dependent for much of its profits on the financial futures markets: more fractional reserves, meaning vast credit issued to the likes of Long-Term Capital Managent.

10. It must settle its inter-bank accounts daily -- no 60-day wiggle room: the threat of cascading cross-defaults.

11. It must have 100% compliance -- Alan Greenspan.

We can sense just how far behind this industry is by the press statements of bankers and politicians. Of no other industry is it said in public that fear could topple it, and therefore that it's the creditors' (depositors') responsibility not to demand payment, as guaranteed by the debtors. No other industry keeps telling clients not to be afraid, not to pull out, not to do irrational things like asking for fulfillment of promises made. No other industry has mobilized the politicians to come to its defense, day after day. The auto industry is silent. The water/sewer industry is silent. Only the electrical power industry comes close to issuing as many public assurances that everything is OK. No other industry uses such stupid arguments to defend itself: "You might get robbed." No other national industry is seriously talking about having to use Chevrolet Suburbans to make deliveries. ("Greenback, greenback -- we deliver!") No other industry has a Web page filled with links to articles with arguments to calm clients' fears about y2k. No other industry tells its clients to substitute something of zero immediate value in a crisis (print-outs of records) for something of high immediate value in a crisis (currency).

If you met two men, each with inner ear problems, each facing problems in maintaining his balance, and one had received an operation that reduced his problem by 50%, you might feel sorry for the other man. But if the first man makes his living as a high wire walker who works without a net, which one would you feel sorry for?

The FDIC is not much of a net. It does not insure banks. It insures depositors, and only in the United States. Who insures the FDIC? The U.S. government. How does the government collect taxes? By check.

It is mid-June. The industry is not compliant. No major money center bank has announced compliance. All the little regional banks have deposits in the money center banks. If they get scared and pull the money back home, this will paralyze the money center banks. When depositors in Peoria take out currency, the effects will be felt in New York City by the end of the business day.

When depositors in Tokyo do the same. . . .

Don't be fooled. The banking industry is the worst prepared of all industries to deal with y2k.

What is your opinion? Here are your options:

1. Bow before the ATM.

2. Use it.

-- Things aren't looking very good! (prepare@now.com), June 21, 1999

Answers

1. This has already been posted on this forum.

2. Its content does not support its title this time any more than it did the previous time.

Jerry

-- Jerry B (skeptic76@erols.com), June 21, 1999.