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Summary and Comments

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Category: 

Banking

Date: 

1997-07-12 00:00:00

Subject: 

Compliant Banks [Ha!] Dare Not Absorb Noncompliant Ones

  Link:

http://www.senate.gov/~banking/97_07hrg/071097/witness/martin.htm

Comment: 

Larry Martin of Data Dimensions testified to the Subcommittee on Financial Services and Technology of the Senate banking Committee that comliant banks will face serious problems if they try to absorb bankrupt noncompliant banks in 2000.

"The current tendency in the banking industry towards consolidation, particularly in terms of mergers and acquisitions, poses and addedrisk. A bank that has worked hard to become Year 2000 compliant might acquire another bank that hasn't. Then the whole process is back to square one. And what about the creditworthiness of companies to which banks have lent money? If those companies are not Year 2000 compliant, the risk to the banks is greatly magnified. It is very difficult to pinpoint all the possible consequences of non-compliance. All one can do is say that the problem is pervasive" (p. 2).

This is an extremely important observation. This means that the standard answer of the optimists is wrong. "Sure," they say, "some outfits will go out of business, but the successful ones will absorb them. But the Millennium Bug is like the alien in "Alien, I-III": it kills anything it invades. When you're talking about banks, you can't rely on the corporate "absorption" theory of disaster-avoidance.

Fact: If all the banks aren't fixed, all obver the world, none of them is safe. If all the banks aren't fixed, nobody can be sure that his bank is safe. When depositors figure this out, the bank runs will begin. This will be an international bank run that spreads to every bank. The fixed banks will be as vulnerable as the noncompliant banks. Who is going to believe some banks' press release that insists that it is compliant? No one can guarantee that the international banking system as a system is compliant. That dooms them all. The panic will hit. Nothing will stop it.

Be prepared. Early.

Link: 

http://www.senate.gov/~banking/97_07hrg/071097/witness/martin.htm

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