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
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.