Banks showing Y2K concerns

USA Today

Tuesday, August 31, 1999

Banks are starting to see more customers ask for contingency lines of credit for the Year 2000, the Federal Reserve said Monday.

It's the latest sign that companies want to be ready for any disruptions caused by computers that haven't been programmed to read ``00'' as 2000, instead of 1900, when calendars roll over on Jan. 1.

About 10 percent of non-financial firms and 20 percent of financial firms have asked their banks for a special Y2K credit line, according to a quarterly Fed survey of senior loan officers.

While the percentages are small, they are double what they were three months ago and ``in some cases, (the size of the requests are) substantial,'' the Fed said.

The most requests came from other banks, mutual funds and brokerages.

And as year-end approaches, there could be a huge jump in the number of requests, says Keith Leggett, senior economist at the American Bankers Association (ABA).

The survey also says:

- All 60 domestic banks surveyed are willing to extend special credit. But two-thirds will only do it for existing customers. Banks don't want to give credit lines to companies if they aren't already comfortable with their Y2K readiness, the ABA's Leggett said.

- Some 70 percent of banks surveyed said they would be willing to use a special credit line for Y2K problems that the Fed plans to open Oct. 1.

But 30 percent said they would rather borrow elsewhere and pay higher rates. Key reason: There is a longstanding perception that only troubled banks go to the Fed for money.

- Nearly 95 percent of the banks said fewer than 5 percent of their biggest customers were not making satisfactory progress toward Y2K preparedness.

But even if a business has shown it is ready for Y2K, it may pay more for lines of credit that extend into next year; 25 percent of domestic banks, up from 15 percent in May, are raising rates or fees for that.

Because of the uncertainties, banks want a premium for lines of credit that may be tapped due to Y2K problems, said James Glassman, chief U.S. economist at Chase Manhattan Bank.

On another topic, the survey said a few banks have raised rates and fees slightly on commercial and industrial loans. But there's been little change in terms for households and small businesses.

The slight tightening of lending terms is tied to concerns about potential economic weakness, according to the Fed.

The next survey is due in November.

-- Gayla (privacy@please.com), September 01, 1999

Answers

Link

-- Gayla (privacy@please.com), September 01, 1999.

Humm... Y2K credit lines. That's an "interesting" twist.

Thanks, Gayla.

Diane

-- Diane J. Squire (sacredspaces@yahoo.com), September 01, 1999.

Well, well, well. So the question is: was that extra $200 billion printed up for us little ol' hoarding citizens, or for keeping up with the credit lines? Hear tell, another $20 billion was printed recently. All the $50's I got the other day were new bills. The money mad monetizing continues. Tis this not Wonderland, with a genuine Money Tree that keeps growing and growing?

-- Alice (madhatter@wonder.land), September 01, 1999.

About 6 months ago, I ran some preparedness stuff in a WRP about opening and maintaining lines of credit. Seemed like an obvious "prep" for a business. -sigh-

Well, I'm glad they're getting around to it now.

-- cory (kiyoinc@ibm.XOUT.net), September 01, 1999.

The search for liquidity may also be behind some of the major corporate bond offerings that have flooded the market in the 3rd quarter.

-- Jon Williamson (jwilliamson003@sprintmail.com), September 01, 1999.

The Fed Survey report

Jerry

-- Jerry B (skeptic76@erols.com), September 01, 1999.