From Insitutional Banking & Y2k  Operational Risks  pdf file http://www.intl-monitoring.com/Institutionalbanking.pdf

Whether or not bank failures are more serious than other failures, individual banks are viewed as more susceptible to failure or more "fragile" than other firms and the banking industry more susceptible to contagion than other industries. Banks are viewed as more fragile for three reasons ( Kaufman 1996 ) . They have: 1. Low capital-to-assets ratios ( high leverage ) , which provides little room for losses. 2. Low cash-to-assets ratios ( fractional reserve banking ) , which may require the sale of earning assets to meet deposit obligations. 3. High demand debt and short-term debt-to-total debt ( deposits ) ratios ( high potential for a run ) , which may require hurried asset sales of opaque and non-liquid earning assets with potentially large fire-sale losses to pay off running depositors.

The adverse implications of this fragility are intensified by the fear that banks invest in assets that are opaque, illiquid and difficult to market, contain private information, and can change in market value abruptly and that depositors may run "irrationally" on banks, forcing unnecessarily large fire-sale losses. Thus, the greater fragility is believed to lead to greater failure. Moreover, because banks are closely intertwined financially with each other through lending to and borrowing from each other, holding deposit balances with each other, and the payments clearing system, a failure of any one bank is believed to be more likely to spill over to other banks and to do so more quickly. Default by one bank on an obligation to another bank may adversely affect that bank's ability to meet its obligations to other banks and so on down the chain of banks and beyond. These cascading failures if unstopped put the current global economic system at risk.

The potential for any of the 5 risks to materialize into a worst-case multi-trillion dollar scenario due to Y2K is hopefully low; our crudest speculation would be below 30%. Even low probability for events of such scope represent significant risk. The nature of these risks is event and or market driven and thus not prone to be seen until it happens. The Asian crisis in 1997 unfolded over a period of weeks. Our projections for the risk scenarios would involve events unfolding within days.

It is important to note that as of the writing of this report September 23,1999 the markets have not significantly priced these event probabilities in. This should not to be considered a statement of advice, merely a comment.

All banking systems rely on public telecom or electrical networks at some point in their processes. There is a risk of global financial gridlock due to isolated Y2K related instability in these networks.

Y2K related financial gridlock due to Herstatt risk could be on the order of trillions of dollars involving multiple large or small institutional bank failures, due to liquidity problems and or one of the 5 risks mentioned. Even assuming a low probability for these scenarios, the situation needs to be considered in a co-ordinated manner. The potential for a situation similar toBankhaus Herstatt in 1974 could pose the most significant risk to the international monetary system seen to date. Unfortunately, neither the BIS, IMF, Global 2000 working group, nor The Worldbank has a fully co-ordinated crisis response plan for such situations.

According to the World Gold Council, the Worlds central banks control 34,000 tons of gold worth $300 billion representing 10%-15% of reserves. In the face of partial demonetisation of economies, maybe these goldbugs arent so off base.

Global financial gridlock relating to counterparties fearing a liquidity crunch could become a self-fulfilling prophecy. Counterparties failing to meet their obligations or the perception that counterparties may fail in their obligations could lead to financial payment gridlock. The costs associated with this threat should not be under-estimated. Trillion dollar figures are involved. Single bank failures pose a relatively benign threat. Firms problems or the perception of problems due to mis-communication could exacerbate the seemingly improbable situation of gridlock.

A banks perspective Our sector aggregation suggests that globally, transportation, utilities and telecom sectors have among the lowest Y2K compliance ratings. This is especially worrying because they make up the mission critical sectors in any economy. - Vikas Nath Credit Suisse First Boston September 5,1999

-- Andy (2000EOD@prodigy.net), October 02, 1999

Answers

Actually the smart money is liquidating your gold while it is at it's high point. Sell all of it and do it quickly.

-- GOLDilocks (use@your.head), October 02, 1999.

Example of "smart money" selling gold now, or is this just your opinion? What are you going to do with your excess electronic and paper money?

-- Bill (y2khippo@yahoo.com), October 02, 1999.

Goldilocks will be stocking up on porridge.

Us Bears will be stocking up on more gold.

As someone who worked on bank computer systems for five years or so this systemic risk is very very real.

I'll have all digital money out of the banking system before rollover, and will wait and see what happens. I'm 90-95% sure that there will be gridlock, and at this rate it may not be all y2k induced.

-- Andy (2000EOD@prodigy.net), October 02, 1999.

Andy, why does no one talk about platinum and palladium, which are going up? Are there advantages to diversifying?

-- Mara Wayne (MaraWAyne@aol.com), October 02, 1999.

Mara

Although platinum seems to be leadimg the charge now, ultimately it all depends upon the economic level reached post Y2K. For anything more serious than a 4 or so, it is my judgement that the industrial metals (platinum and palladium) will not do nearly so well as moneymetal. Silver is a possibility, but it is much bulkier and heavier than gold.

I can see no reason to diversify out of gold.

dave

-- dave (wootendave@hotmail.com), October 02, 1999.

If GOLDilocks thinks we're not at the top regarding the price of gold, I have some great waterfront property in the middle of the Mojave desert I'll sell him.

-- cody (cody@y2ksurvive.com), October 02, 1999.

Hey Andy,

I had the most profitable week in my entire life last week because of the gold spike. How about you? Looks like the next three months are going to create ANOTHER group of millionaires. Theres going to be alot of millionaires loose there fortunes over the next 3 months as well, that are invested in the stock markets. My fiat gains are going into more real money in the next couple of weeks.

Mike

-- Flierdude (flierdude@sprynet.net), October 02, 1999.

Hey Mike - other goldbugs,

email me at E022310@den.galileo.com and I'll let you know what I'm up to - maybe we can swap advice

good luck to all :)

-- Andy (2000EOD@prodigy.net), October 02, 1999.