What will happen to the banks?

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I must admit I have gone off the Y2K boil recently as I contemplated whether to draw out a few thousand pounds in cash.

I asked myself if it was possible for my bank to lose all the money I had deposited with them.

I thought of four scenarios:

1. Their accounts database becomes corrupted. 2. They go bankrupt as a result of over-risky investments. 3. Bank runs. 4. The power stays off.

Well, in case 1, banks back up customer information on a daily basis on removeable and storeable media so there is no question of the accounts information being lost.

This notion of non-compliant data corrupting their financial databases sounds intriguing but I am trying to figure out what a non-compliant record looks like. Does anyone know their contingency plans for such an eventuality?

Case 2 is possible but it wouldn't happen immediately - perhaps months after January IMHO (the banks did not fails for months and even years after the 1929 Wall Street crash). Long enough therefore, to assess the public effects of Y2K and withdraw ahead of the spin-hypnotised crowds.

Case 3 will not happen. The banks and government will do everything in their power to stop the herd; quite simply it is too important to them to fail.

Case 4 is not on, the power will not stay off and if it does your money won't be much use anyway - you will have far greater problems.

Any thoughts?



-- Shuggy (shimei123@yahoo.co.uk), October 19, 1999


Reexamine Case 1 Shuggy.

If they have problems with their systems and need to go to the backup tapes for some given day, how long do you think it will take them to be able to reliably retrieve this data? One week, two weeks? Will people accept your checks in the interim if they know your bank is having problems?

That's how much cash you'll need.

-- nothere nothere (notherethere@hotmail.com), October 19, 1999.

The main backup in question would be 30th December 1999 - the 31st may contain the first rollovers from across the world. That is the ultimate fallback position.

The other point is why do we only ever talk about one database? Banks have many databases reflecting the various divisions, services and investments they have.

If a UK bank has one database dedicated only to UK current accounts I fail to see how it can get corrupted by data from a non-compliant insititution in Taiwan. Such a localised database should be immune to something it has absolutely nothing to do with.

Another unrelated database dedicated to Asian currency trading is a different matter and a more urgent focus for remediation and contingency planning but if the whole Yen database was fouled up it should have no effect whatsoever on the database of current accounts in Manchester, Dover or Cricklewood!

The other contigency is personal awareness - no one has a greater interest in a current account that the account holder - it is their money after all. People will be watching their accounts like hawks armed with receipts and cheque stubs if it deviates by one per cent against them.



-- Shuggy (shimei123@yahoo.co.uk), October 19, 1999.

A more likely scenario would be defaulting banks pulling down other banks who hold loans with them. And thus rapidly depleating the small default reserves.

And thus canceling the most important asset of that bank, its customers' trust in its liquidity.

And thus canceling the most important legacy of the banking system, that being the public trust of liquidity of the banking system.

-- no talking please (breadlines@soupkitchen.gov), October 19, 1999.

I think you need a few thousand pounds of food and water.

-- Paula (chowbabe@pacbell.net), October 19, 1999.

Dear no talking please,

My case 2 is possible but banks have a tenacity for hanging on. Just look at the major banks in Japan, they have serious liquidity problems but are being propped up by various suitors even after Japan's fall into major recession (or even depression technically?) 10 years ago.

I am just saying that in such a case we can expect a sufficient gap to wait, evaluate and act.



-- Shuggy (shimei123@yahoo.co.uk), October 19, 1999.

Couple of issues, Shug.

1) Your case 1 is too simplistic. Think systems and systemn of systems, not just data records. Think miscalculated accounts and transactions, not just date problems. Think about the headaches you have had over ONE bank screw up in your experience (multiply this by billions over months).

2) In the USA paper money is LEGAL TENDER but bank accounts, checks, etc are not necessarily LEGAL TENDER (ie - they may be refused for payment if there is a question about the solvency of the intermediary banks). I do not know what the regulations/laws are in the UK so you may wish to investigate this in terms of the role paper cash plays in your nation.

3) What settlement will be used if things don't work out very well? Typically cash is THE only settlement means accepted.

4) If you keep your money 'in the bank' you are betting that they will do OK. But what if they don't do OK? Will they double your money and return it to you??? If it is a bet then both parties must stand to gain or lose equally. In this bet they will only give you your own money back if they are OK, but will give you nothing back if they are not OK.

It may be argued that a government has garranteed the accounts via some insurance scheme. In reality insurance schemes can only work so long as most claims are never made. In the USA its the FDIC and they only have $1.45 to cover every $100 in deposits. Sobering isn't it?

-- ..- (dit@dot.dash), October 19, 1999.

Dit dot dash,

Your points:

1. Is this a systemic problem? I was assuming that UK banks had remediated their own accounting software which manipulate the databases. I see no reason to doubt they have. It is not a big problem to re-engineer the Oracle or whatever software to do this. Are Oracle Y2K complaint - I suspect so.

The point being branch/city/regional databases are fixed and should be shielded from other programs/databases which they have no relation to. This is a non-systemic problem.

2. Some commercial banks can issue their own notes as legal tender. It is backed by the UK government under their "franchise". I don't disagree that a bank could go under and default on their deposits - I was pointing out that such banks will not immediately die - they will persist. That is the time to decide whether to get the currency out and before the spin dies out.

3. Settlement is a different issue. I was talking about the bank not losing track of your pre-2000 money. Settlement is about moving monies around thereafter. I do not foresee a problem with the national BACS system as regards current accounts. I don't know about SWIFT but again what has that to do with local accounts? If my bank cannot transact a Yen to Dollar exchange how does that stop me paying my phone bill?

4. I do not deny my bank could go under eventually. My argument is that there will be sufficient warnings post-Y2K to those who ignore the spin.



-- Shuggy (shimei123@yahoo.co.uk), October 19, 1999.


While it is true that banks maintain backup records of their data, that doesn't neccessarily mean that these records are readily available. To reconstruct a series of checking account desposits, I contacted my bank for a copy of their microfilmed record. It was found, printed out, but the whole process took about 10 days.....consider the fact that this was a isolated request, preformed during "normal" times (grid up, etc.) and their wasn't hordes of other angry depositors demanding a similar request. While it is true that any major customer credit defaults serious enough to bring down a bank would involve some time, that also doesn't neccessarily mean that you, as a depositor, would receive enough lead time to withdraw funds in time. Back in the 1980's, one of the largest banks in Chicago sold off their very profitable credit card division. The local financial press was confused by this unexpected sale, there wasn't any plausive explanation given at the time. Later, there was a massive withdrawal of funds from overseas depositors while the small retail customer was still in the dark. The bank was taken over by the FDIC, and later merged with other local banks. Turns out, the bank was in serious financial troubles and sold off their credit card division....just to make the quarterly dividend payment! Forget about the next three months, just make it through the day. The point is that by the time the public realizes to nature, scale, and extant of any bank troubles, it's too late to take effective action. Banks runs can and will happen. Financial history is full of such panics, consider what happened in Russia last year. As long as the the baking system is based on minute factional reserves, it's a present danger. Any lost of confidence can and will trigger a run. After the 1987 stock market crash there were runs on non-FDIC instituions in Rhode Island. The governer simply froze all accounts to stop the run....much the same will happen this time around. Because nearly everyone with a grade school education and below is aware of y2k (even if they think it's not serious), a stock market crash now will precitate a change of perception with greed being replaced by fear. With only 73 days left, the amount of taxiable interest you might earned is insignificant to risk of losing all of your money due to a panic. As Will Rogers quipped, during the 1930's, "I am more concerned about the return OF my money than the return ON my money".

-- Sure M. Worried (SureMWorried@about.Y2K.coming), October 19, 1999.

>> Case 3 [banks runs] will not happen. The banks and government will do everything in their power to stop the herd; quite simply it is too important to them to fail. <<

This arguing from the conclusion to the premise. If this reasoning worked, no one would lose a war, no one would die, no one would make large or significant mistakes. After all, these outcomes are too important to leave to chance, and every possible effort will be made to win the war, stay alive, and avoid costly errors. These efforts must succeed.

-- Brian McLaughlin (brianm@ims.com), October 19, 1999.

Dear Sure Am Worried,

I am not surprised a microfilm record took longer, I was talking about access to an online database server located locally (delayed database copy) or centrally.

As for lots of customers, that would stress humans but not the machines since all enquiries still go through a limited number of terminals. That also presupposes problems with non-foreign accounts which I am arguing will not be stratospheric.

Unlike your Chicago bank default story, we do have a lead time in Y2K. it will become apparent within days what the effect will be. I will be watching Asia especially carefully. If things go belly up there that is my signal to withdraw - but the average punter will not equate problems in Asia with problems in Britain - be vigilant.

If the stock market crashes then everyone will be concerned with getting that money into their bank accounts - not out!

You proved my point regarding bank runs - they stopped the Rhode Island bank runs by decree. In the case of Y2K it is a different problem; where does Mr. Public transfer the money? I bet those Rhode Island people weren't withdrawing cash but just simply moving funds to other banks. One question, what was the time between the stock market crash and the Rhode Island bank run?

The UK government will not freeze every bank account in the country - that would grind the economy to a halt worse than Y2K would do!

Must go,


-- Shuggy (shimei123@yahoo.co.uk), October 19, 1999.

I also agree that bank runs will be prevented.

Why wouldn't TPTB do so?

-- lisa (lisa@work.now), October 19, 1999.

Shuggy, for all I know, you may be completely correct on all counts. On the other hand, you may be wrong on one or more counts. Or wrong on yet some other count that none of us have considered. As the saying goes, "It is what I don't know about what I don't know that is what is worrying me".

Without a doubt, however, cash will (at least initially) continue to be accepted for all debts, public and private. Even if the power is out, even if telecommunications are out. Ask youself this: If you were a merchant and had juste one item for which there were two buyers, one with cash and the other with "special currency" issued by some bank, which one would you sell to?

73 days.

-- Jack (jsprat@eld.~net), October 19, 1999.

The banks will be used as shelters after the starving is over. Hacka few holes in the walls and you have a pretty cool bulletproof bunker in that vault. It's obvious shuggy is here to argue "the banks will be fine, and if not I still have 17 hours to get out if the japs go down." WHat patent nonsense!! If Asia is going off the deep end, and you DO get your pounds out.. WHAT THE HELL WILL YOU SPEND IT ON? besides, we can argue all day about whether banks will fail or not, but y2k doesn't just affect banks, it affect businesses, armies, governments, utilities, farms, and MOST IMPORTANTLY (to britain anyway, being that you import so much food) the merchant marine!! hey shuggy try to picture london after three weeks with no food shipments form overseas.. duh, you say UK is ready? so what if it is? if you guys lose most of the 2nd and thrid world (no winter veggies from s. america & africa, no cattle from argetina, no sheep from the ANZAC's etc) then you will be SOL. Duh. it's systemic shuggy.... All fall down...

-- jeremiah (braponspdetroit@hotmail.com), October 19, 1999.



Now, did that get your attention? yes/no?

-- buffy (history@buff.1929), October 19, 1999.


It is always amazing to me that people can look at the same st of facts and draw completely different conclusions.

By the time it "becomes apparant" to you that Asia is in trouble because of y2k, your "signal to withdraw" will also be evident to enough people to cause a bank run. This signal will then be worthless because the only useful course of action is to withdraw NOW, before it is apparant to the masses. You must understand what the ramifications of the factional reserve banking system really means: there are only pennies on the dollar available, and only the first in line have any hope of getting their money back. Yes, closing the banks does mean that the economy will stop in its tracks, that's actually what happened in 1932. What you are looking for is "proof", that is an epistemological impossibitily before the occurrence. Before the fact, all we can base our decisions on whatever evidence we can gather and likely guesses.

Of course if you decide to leave your money in the banking system, your share of the limited cash supply can and will be used to cover the withdrawal request of someone less inclined to wait. Once the banks are closed, you stand the risk of losing everything. It's your choice.

-- Sure M. Worried (SureMWorried@about.Y2K.coming), October 19, 1999.


You're asking a different set of questions. You're saying it doesn't matter if you have money - full stop.

I also never said anything about a 17-hour warning, it will be longer than that.

You're saying Britain will have NO food imports for three weeks at least from anywhere? Where is your proof that this will infallibly happen?



-- Shuggy (shimei123@yahoo.co.uk), October 20, 1999.


I know enough about the 30s depression, I've read "We had everything but money" and Galbraith on the crash.

What your link did not say was the time period between stock market failure and bank failures.



-- Shuggy (shimei123@yahoo.co.uk), October 20, 1999.

Sure Am Worried,

When the Russians were lining up outside their banks last year after Russia defaulted on its debts, I do not remember anyone scrambling to their ATMs in Britain or America despite seeing the stock markets drop nearly 25%.

The Asian debacle the year before hardly registered with Joe Public either.

There will be an initial "It's their problem" mentality, It will be the same with stocks, when we enter the next bear market there will be plenty who will keep reassuring themselves that buy&hold over the long term will smooth things out (BTW, a bear market does not automatically equate to bank failures).

The "proof" argument cuts both ways - no one can prove either way what will happen. My strategy is 100% out of stocks and bonds, some food, some alternate heating and I do have cash but have only withdrawn half of it.

Good luck in your plans.


-- Shuggy (shimei123@yahoo.co.uk), October 20, 1999.

Regarding banking, many folks forget how banks earn their income. They earn via LOANS and derivatives speculation (and an endless stream of add-on fees).

Loans:Anyone applying for a loan must prove they have consistent means of income. Persons who have just become employed are high-risk, since they show no track record. Persons in a profession that is "on its way out" (ex. aesbestos in 1980's) would likely face skeptical reception from the loan committee. I do believe that the true banking meltdown will emanate from the BANKERS and not the PUBLIC. They will become increasingly skeptical about a loan applicant's ability to remain gainfully employed. In times of high uncertainty, bankers will most certainly scrutinize every single applicant; they will examine the likelihood of lay-offs and general work-stoppages due to y2k problems. If a General Motors type operation shows realistic possibilities of operations being halted or interrupted by y2k effects, or domino-style reverberations, then what do you think a banking loan committee will decide, regarding a thirty-year mortgage?

As much as Bankers preach to the public about trusting THEM, THEY WILL NOT RECIPROCATE THIS TRUST TO THE PUBLIC!!!!! If your employment seems "iffy" you won't get a loan. NOW, the prize-winning question is this: Just HOW FAR can the banking industry go in being slow to extend credit in uncertain times, before they simply have difficulties finding ANY viable lenders???

REMEMBER: The bankers say the crux of the y2k/public issues is that depositors keep their money in the banks. The reality is that bankers can find credit-worthy applicants in a iffy enviornment.

Derivatives: American Banks make millions off derivatives. These are highly leveraged financial instruments that have indeed allowed banks to rake in the bucks. In the case of Long Term Capital Management(hedge-fund, not bank), just a short year ago, the public had the opportunity to again witness the explosive loss potential that these "crap-shoots" pack. The million $ question here is: Can banks unwind their positions and still "make it?" and, Can every American Bank extricate themselves from their current positions without throwing panic into the global markets? Great question! Times of uncertainty? YOU BET!

Conclusion: Do not follow the bankers' attempts to misdirect your attention from the true y2k debacle they face. In the final "act", Bankers will rush to protect ONLY THEIR INTERESTS. Their actions, I believe,will precipitate the need for government intervention. NO BANKER WILL SIT STILL and HOLD LOSSES. They will screw the public, screw their peers(other banks) and screw anything that is screwable, before they simply "eat" losses.

As for "add-on" fees, this means of income will follow the many who are declared either, "no longer credit-worthy" or "deemed too risky for loan consideration at this time".

Whatever comes of this MESS, I'd think it prudent to have at least some"cash-stash" while we wait for resolutions, if any, to these major issues and flaws in our banking system.

In the final analysis, this will be a crisis of confidence. It will be the LACK of the BANKING industry's confidence in US!, and not the other way around!

Regards, He Who Rolls with Punches!

-- Rolls with Punches (JoeZi@aol.com), October 20, 1999.

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