FOCUS-Fed says Y2K could affect bank reserves

WASHINGTON, Oct 6 (Reuters) - Queasy financial markets as Year 2000 nears could make it difficult for banks to comply with reserve requirements but the Federal Reserve is trying to alleviate the problem, Fed Vice-Chairman Roger Ferguson said on Wednesday.

In prepared remarks for delivery to the National Association of Federal Credit Unions, Ferguson said "it may be difficult, if the markets become volatile, to forecast aggregate demand and supply, engendering the potential for an unexpected shortfall in reserves."

Ferguson, sworn in as vice-chairman of the U.S. central bank on Tuesday, said the supply of money might become uneven, since "some banks and perhaps some credit unions may receive increased deposits and be flush with funds while others may experience unexpected shortfalls."

The Fed has set up a "special liquidity facility" through April 7, 2000, so that financial institutions including banks and credit unions can get loans to handle unusual funding and liquidity needs.

Ferguson emphasized that institutions should not feel any "stigma" was attached by regulators or markets to using the special facility, adding that if they did "then the potential for this facility to ease Y2K liquidity needs may not be fully realized.

The Fed expects automated teller machines and other components of the payment mechanisms for settling checks and so on to operate smoothly through the date changeover.

But Ferguson said that, as a precaution, the Fed was storing cash around the country "to allow banks to meet any sudden or unexpected spikes in the currency needs of their customers."

He said much has been done in the United States and around the world to prepare for possible computer malfunctions in 2000, but warned against becoming complacent.

"No one can say with certainty that there won't be any problems or disruptions during the century changeover," Ferguson said, though they should be small and of limited duration.

He said that in June this year, electric power distribution companies serving 96 percent of the nation's electricity needs had made adjustments to be ready for Year 2000. Long-distance telecommunications carriers that control 92 percent of domestic calls had nearly fully completed preparations.

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Ray

-- Ray (ray@totacc.com), October 06, 1999

Answers

in other words...Bank Run Contingency Planning

Mike

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-- Michael Taylor (mtdesign3@aol.com), October 06, 1999.

About what is to be expected, if a panic occurs... The FED is merely doing what it has to do to keep the system up. The alternative could be chaos. However, the FED's move does have its own element of risk. We could see institutions (read: Banks) which are technically insolvent...and which do not have the reserves required in prudent bank operations.

-- Mad Monk (madmonk@hawaiian.net), October 07, 1999.