NEW YORK TIMES
December 30, 1999

Cash Hedge of $220 Billion for Year 2000 Is Unwanted

By TIMOTHY L. O'BRIEN
For months, American banks and regulators have been bracing for a year-end rush of withdrawals by depositors fearful that Year 2000 computer problems might cause teller machines to fail or credit card transactions to be rejected.

Piles of extra money have been printed by the federal government and shipped to banks here and abroad. Normally, about $150 billion in cash sits in the Federal Reserve and American bank vaults worldwide. But this year an extra $70 billion -- or about $255 for each man, woman and child in the United States -- has been printed, dispatched by planes and armored cars and stored in vaults, awaiting the onslaught.

Making Enough to Go Around

Earlier this year, the government realized it might be facing a Year 2000 crisis that had nothing to do with computers: people might hoard cash as the turn of the century approached because they were afraid of a catastrophe. To prevent a disaster, the government decided to print and distribute $70 billion to add to the $150 billion already in reserves. Here is how it was done.

GETTING THE MONEY INTO CIRCULATION

1.An order was sent to the Treasury Departments Bureau of Engraving and Printing to print money  11 billion bills in all.

2. The bills were distributed to processing centers run by the Federal Reserves 12 district banks.

3. Commercial banks, which were reminded to have enough cash on hand, ordered currency from the Federal Reserve.

4. The banks accounts with the Federal Reserve were debited and the currency was shipped to each bank.

5.Customers who were worried could withdraw more money than usual. 1. If customers find they do not need extra cash, they are likely to redeposit some of it.

2. Banks may end up with too much cash on hand and return some of it to the Federal Reserve.

3. Most of the bills that are returned will be stored in the Federal Reserve distribution centers.

4. Some bills that are no longer any good will be shredded. Most will go into landfills.

And there it sits.

Several of the country's largest banks say they have not experienced unusual demand for cash at their branches or automated teller machines. On some days recently, these banks said, cash demand has been lower than it was a year ago.

"Up to date, we have seen no increased demand for cash," said Thomas Sladowski, vice president in charge of Chase Manhattan's automated teller machine network. "We're all hoping this will be the biggest nonevent of the century."

And if all that cash ultimately is not needed, banks will return it to the government, to be recirculated some day or shredded and left in landfills.

The complacency about cash is just the latest sign that the public is taking the prospect of Year 2000 computer disruptions in stride. Of course, problems could yet occur, sending depositors flocking to their local branches. Bankers and regulators acknowledge this, noting that even in a world grown accustomed to the pleasures of plastic credit cards, there is nothing quite as reassuring as cold hard cash.

"The biggest variable in the equation remains public perception," said Doug Tillett, a spokesman with the New York Federal Reserve. "We really don't know how people will react."

So far, there has been little to give consumers pause, although flare-ups have occurred. On Tuesday, about 20,000 credit card terminals in Britain began to stall because of computer glitches, holding up holiday shoppers. A spokeswoman for HSBC Holdings, the large British bank that operates most of the terminals, said the devices could not recognize the year 2000 but that the problem would be resolved by Jan. 1.

Nonetheless, at least in the United States, bankers feel well prepared for Year 2000 headaches and are satisfied that they have plenty of cash to dole out should people want it.

Simply getting all that cash into the system has been a challenge. Earlier this year, the Federal Reserve and the Treasury Department directed the Bureau of Engraving and Printing to begin printing the extra billions. And banks were directed by regulators to order more cash for their vaults.

Most of the $220 billion in reserve cash is held in Federal Reserve coffers around the country, awaiting orders from banks should they need it. A smaller portion, about $72 billion, is already in bank vaults, about $20 billion more than banks typically keep on hand this time of year.

So long as the reserves are not drawn down, the mere printing of extra cash has no inflationary effect. For banks, holding more of their assets in extra cash means that they can lend less and thus earn less money. So far analysts are not concerned that the impact on bank earnings or the economy itself will be substantial, as long as the need for extra wads of cash remains a short-term event.

If and when the all-clear is sounded, banks will quickly ship that pool of extra cash back to the Federal Reserve -- setting the vast conga line of planes and armored cars back in motion.

For its part, Chase has set up 27 special command centers to monitor its banking network 24 hours a day between Dec. 31 and Jan. 11. The bank even increased its paper supply in the event that a flurry of receipts or bank statements needed to be printed, and it has been funneling extra cash into its branches since October.

Chase, which is based in New York, said it planned for increased cash demand of 30 percent in October and November and an increase of 200 percent in December, but that none of that demand had materialized. Still, extra cash is in the branches, and that presents security concerns for Chase, other banks and the armored car companies that serve them.

Banks and armored car companies say they have bolstered security to protect this momentary cash hoard. "The holiday season is always tough, but with additional money out there we're putting more security on the street and around our cars," said Kevin Dunbar, chief operating officer of Dunbar Armored, an armored car company that operates from 80 locations around the country.

Banks also have been simulating crises to prepare themselves for a range of computer-related disasters, not just a run on cash. Wells Fargo, the large San Francisco bank, has completed three practice runs in which its personnel had to negotiate 25 potential problems. The last one was completed a month ago and Wells said it had "developed a strong sense of confidence" about its ability to handle anything that arises as 2000 arrives.

Some banks already have had a taste of crisis management. In the fall, Bank of America, based in Charlotte, N.C., had to rush cash to branches on the Atlantic coast so depositors could get their money before evacuating in advance of a hurricane. That event involved a rapid series of armored car trips to the coast and back -- excellent preparation, a spokeswoman said, for any Y2K hysteria that might emerge.

Oversight for Citigroup, one of the largest and most ubiquitous financial institutions in the world, is a tad more complex. The bank said it had seen no heightened cash withdrawals at its global branches -- but it has to monitor activity in 100 countries. To do that, Citigroup has set up a special central command center in an undisclosed location in the United States. Information about the bank's activities is fed to that center from 15 regional command centers in Asia, Europe, the Middle East, Africa and Latin America.

Most banks in the United States, meanwhile, are just keeping their fingers crossed. And counting on consumers to keep their heads.

"We've tried to make it clear to people that the safest place for your money is in the bank," said Steve Dishart, a spokesman for Mellon Bank of Pittsburgh. "People seem to be taking that at face value."

[ENDS]

-- John Whitley (jwhitley@inforamp.net), December 30, 1999

Answers

The Update around these parts is there is no run for cash at the banks. Both myself and the wife work at banks. Everyones geared for the long lines of people withdrawing thier money , It isnt happenning, This may turn out to be all about software after all.

NYC

-- nyc (nycnyc@hotmail.com), December 31, 1999.

There won't be runs on the banks until there is an event that shakes consumer confidence... be it terrorism or blackouts.

Just give it time... it will happen.

The remarkable thing is that it hasn't happened already. That's cause Kosky and his partners in the media did a great job snowing the country with his three-day snowstorm.

Give it time... any day now...

Keith

-- Keith Nealy (keith@y2kwakeupcall.com), December 31, 1999.

I just grabbed another $500 from the ATM. All nice new crisp $20 bills. I don't have a months wages in cash. But close.

-- anonymous (anonymous@anonymous.com), December 31, 1999.