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Summary and Comments

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Category: 

Banking

Date: 

1998-06-12 09:22:49

Subject: 

Bank of England Says a Catastrophe Is Possible

  Link:

http://www.bankofengland.co.uk/pr98024.htm

Comment: 

The head of the Bank of England, the mother of all central banks, says that if infrastructure in the City fails, there could be a catastrophe. (For reference, "the City" refers to the banking district at the center of London. It is a separate legal jurisdiction.) But, fortunately for Mr. George, he is not responsible for infrastructure.

Nobody is. There is too much of it, and responsibility is decentralized.

This is from the Bank of England's web site. It's not exactly late-breaking news: Feb. 26, 1998.

* * * * * * * * *

26 February 1998

YEAR 2000 PROBLEMS AND THE CITY

The Bank publishes today an account of the preparations in the City for the millennium date change. This is the product of a series of meetings between the Bank and key City infrastructure providers, and we plan to repeat the publication at approximately two-monthly intervals.

The origin of the problem lies in the programming methods used in earlier years, when computer memory was expensive and the use of two digits rather than four to represent the year was an efficient short-cut. Many of those programs, or elements of them, are still in use, and while the problem is simple to describe it is so widespread and pervasive that the cost and complexity of correcting it represents a massive burden on business.

The publication describes the general risks to the City arising from the millennium problem, and gives an account of the main issues currently under discussion. These include benchmarking, testing, contingency plans and specific questions such as the possible need for a change freeze or an additional bank holiday.

In a foreword to the publication Eddie George, the Governor of the Bank says:

"The financial system - especially in a centre as large and diverse as London - is highly interdependent and the failure of one quite small part can easily have substantial knock-on effects. And the failure of parts of the infrastructure could be catastrophic.

It is clear that a great deal of work is in train, but inevitably many players are dependent on the actions of others and information about what each is doing is perhaps not as widely available as it should be. This book, the first of a series that we plan to publish, attempts to provide a picture of the remedial steps being taken and the testing plans now being put in place.

I hope that this publication will act as a catalyst, for there is much still to be done; and I do not rule out the Bank taking on a more explicit co-ordinating role should that be necessary. But it should also, I believe, serve to reassure Londonís customers that the problem is being taken as seriously here as anywhere in the world. I have been personally encouraged by the immense effort being devoted to this problem by all involved, and by the uniform recognition that Year 2000 is a mutual problem, not a competitive one, requiring the fullest co-operation both at home and internationally."

The Bank is working closely with the FSA on this issue. The FSA is focusing its supervision on the risks to individual financial institutions, while the Bank is concerned with the financial system as a whole, especially the dealing, payment and settlement systems in which the Bank itself plays an important part.

Link: 

http://www.bankofengland.co.uk/pr98024.htm

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