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1998-02-13 15:26:03


Federal Reserve Vows to Begin Testing in July



The nation's central bank is just about ready to begin testing in July.

This report continues the Party Line: big banks will be OK; smaller banks are already in big trouble.

My interpretation of what this spin means: "When planning for your own personal bank run, pull your money out of a small bank and put it in a big one!"

This is a Reuter's report (Feb. 11).

* * * * * * *

The Federal Reserve, carrying the flag on a crusade to exterminate the Millennium Bug from the U.S. banking system's computers, will begin testing corrections made to its key applications to banks in early July, Fed officials said.

"We have a requirement that all of our critical applications that interact with financial institutions ... be be fully repaired and tested so we may begin testing with customers at the beginning of July 1998," Carl Gambs, the Federal Reserve System's Century Date Change project leader, told Reuters in an interview.

"We're on schedule to do that," added Gambs, also a senior vice president at the Federal Reserve Bank of Kansas City.

The initiative will mark the first "real world" testing of remedies currently being developed by the Fed to solve the Millennium Bug, a flawed date computation algorithm that may wreak havoc in the financial world at the turn of the century. . . .

The Fed expects this testing phase to be concluded by late 1998, which would leave the central bank and the rest of the industry with another year to flush out the likely problems that will emerge after the redesigned software is put to work. . . .

The Fed official said most of the largest U.S. banks, whose assets exceed $1.0 billion, have been fixing their own software and hardware for some time now, and should be ready to start testing their corrected applications with the Fed's updated software in July.

There are some 250 financial institutions in the United States that fit in that category. "That external testing will commence in earnest in mid-1998," the Fed official said.

While the big banks appear to be coping well with the problem, the sticking point is what to do with the small banks, which depend on third-party service providers to conduct their daily operations.

The Fed source said those banks, the vast majority by number albeit not by total assets, have been struggling with service providers to make sure they will be operational when the clock hits midnight on December 31, 1999. . . .

"On the other end of the rope, the service providers are swamped with inquires and believe they can't conceivably answer all of them individually," the source said. . . .

Recent surveys conducted by independent private consultants said spending on systems integration, professional services and outsourcing might reach $280 billion over the next five years.

Of that total, some $145 billion is expected to be spent in North America alone.


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