Y2K: Bank to reveal comfort measures

By Richard Braddell

Business Herald reporter

WELLINGTON - Arrangements aimed at comforting bank customers in the transition to the new millennium are expected to be outlined by the Reserve Bank this week.

They are likely to include holding an extra $1000 a week in cash for every man, woman and child, or an extra $4 billion, to meet an expected run on banks because of the millennium bug.

While the banks are confident they have done all the work necessary to ensure information systems and equipment are secure against millennium problems, concern remains that customers will hedge their bets with a run on cash on the eve of the new millennium.

Already, the Reserve Bank has told banks that extra cash will be available so that money will be there for those who want it.

But to ensure enough bank notes are available, it is keeping aside paper notes that will be withdrawn when plastic notes are introduced in May.

Banks are expecting few problems with the accuracy of individual accounts and balances.

Around $100 million is being spent on averting potential problems and any that do arise will be during the holiday period, a time of low commercial activity.

Banks say it is unlikely that extra account statements will be sent to customers before the millennium because statements go monthly anyway.

In any case, they are confident that efforts to make systems fully compliant, along with comprehensive backup systems, will ensure there will be no failure of the banking system.

The industry's confidence in its preparedness is supported by the Y2K Readiness Commission, which ranks banking as the most prepared sector.

Bankers say it will take a run of enormous proportions before their ability to liquidate tradable assets to meet cash demands is exhausted.

One banker dismissed such a "1929 scenario" as impossible since a large proportion of private savings is locked away in superannuation funds and other investment vehicles.

The managing director of the largely retail TSB Bank, Kevin Rimmington, is
confident his bank will be able to meet cash demands since 40 per cent of its funds are held in tradable securities.

Meanwhile, ASB's managing director, Ralph Norris, says some banking activities are operating on a compliant basis already because they involve maturity or expiry dates beyond 2000.

These include term deposits, fixed rate mortgages, automatic payments and credit cards.

"As far as the integrity of the system is concerned, I am very confident that the New Zealand banking system will have little or any problem because of the degree of testing that has gone on," Mr Norris says.

The new interbank real time gross settlement system (RTGS), which was Y2K-compliant from day one, will also simplify the process of discounting securities at the Reserve Bank to obtain cash.

A second phase of testing how banks interact with each other is about to begin.

The head of WestpacTrust's Y2K project, Pat Forbes, says compliance is one area that the banks view in a cooperative rather than competitive way.