Gary H. Stern - President, 1985-2009
Published July 1, 1999 | July 1999 issue
Consumers, whether they're shopping for a loan, an investment or some other product, need to get as much information as possible before making a decision regarding their money. Read any financial advice columnist and you will invariably get this sage advice: Do your homework and know the risks involved.
This caution just makes good sense and this same sort of prudence should also apply to consumers when they consider the upcoming century date change, or Y2K. For the same reason that investors shouldn't make an investment decision based on rumor or fear, neither should they plan for the century date change based on incomplete information. It's important to get the whole story.
When it comes to your money and our payment systems, a key part of the whole story is that the financial system has been working for years to ensure that little or nothing goes wrong come Jan. 1, 2000. Your local bank, savings and loan, and credit union have been working to make sure that their systems are "Y2K compliant" and the regulators have been closely monitoring their progress.
One of those regulators is the Federal Reserve System, and as the president of the Federal Reserve Bank of Minneapolis, I can assure you that the Federal Reserve has been working with the banking industry to ensure that checks will clear, ATMs will dispense cash, and automatic payments and check deposits will transfer smoothly. Federal Reserve banks have been testing the nation's payments infrastructure-checks and electronic paymentswith banks and savings and loans since July 1998. In other words, the daily operations that support the billions of dollars in payments flowing through the banking system have been ready for months.
Does this mean that nothing can go wrong? It would be unrealistic to believe that preparations have been so thorough that there is no possibility of a glitch or two. We live with the possibility of glitches all the time. Summer storms can knock out power and winter storms can paralyze traffic. But glitches get fixed and we move on. With Y2K we've had years to plan and prepare. If anything does go wrong in the banking sector, I am confident that the repairs will be quick and the disruption minimal.
One common preparation for a winter storm is to buy a few more groceries and take out a little extra cash. The Fed and the banking industry are well prepared to meet the potential demand for extra cash at the end of the year. Working with the banking industry, we have increased our cash inventory to over $200 billion.
The question of whether to hold extra cash at the end of the year, and if so how much, is exactly the type of decision on which consumers should do their homework rather than act on the basis of rumor or fear. Among the important factors to consider is that the Federal Reserve and the banking industry expect all of the usual payment methods other than cashincluding checks, debit cards and credit cardsto continue to work. Moreover, nothing about Y2K changes the deposit insurance protection on your money in an insured financial institution.
In view of the banking industry's hard work in preparing for Y2K, I am confident that the better the public understands the situation, the more confident that they will be. With that in mind, I would recall those financial writers who advise consumers to do some research when planning their investments and I would advise the same thing when it comes to Y2K. Talk with someone at your bank, your savings and loan or your credit union. The more you know, the better prepared you will be, and the fewer worries you will have come Dec. 31.