Andrew Hove, Acting Chairman of the Federal Deposit Insurance Corporation, testified to the Senate Banking Committee on July 30. The FDIC is the quasi-private corporation that guarantees all bank deposits up to $100,000.
Hove pointed out that every bank shares data with other banks, which in turn share data with their customers. Bad data from a distant customer can spread to any -- read ALL -- bank computers. This means any bank's customer, anywhere on earth.
We are told that having "unsafe" sex with someone means that we are in effect having sex with every person with whom our partner has had "unsafe" sex. This is exactly what the heart of the y2k problem is all about. Yet every bank is like a local harlot who is having unsafe sex with every man she can lure into her arms. So, from now on, when you think y2k, think VD.
The analogy breaks down, of course. We can easily stop having "unsafe" sex. We can't easily stop dealing with unsafe banks. But we will have to, on or before Jan. 1, 2000.
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Year 2000 risks to financial institutions are not limited to their internal systems Even financial institutions that have taken a proactive approach in addressing Year 2000 problems internally, nevertheless, may encounter difficulties if parties external to the bank with whom they exchange data electronically are not prepared for the century date change. Financial institutions routinely receive date sensitive information from third parties. Errors in customers' account balances may occur if the third-party is transferring information in a two digit year format when the financial institution has reprogrammed its systems to store and process information using a four digit year format. The lack of uniform standards for formatting dates among groups that exchange data electronically complicates this aspect of the remediation effort and makes the testing process especially important.
It is also difficult to predict how long the potential for disruptions related to transactions with third parties will remain a risk. A bank may not have electronic contact with every client and counterparty on a daily basis. Thus, data exchange problems with some third parties might not become apparent until well after January 1, 2000. In addition, a bank's clients and counterparties may exchange data with third parties. Therefore, a bank is not just exchanging electronic information with its clients and counterpartles but, by extension, with every client and counterparty with whom the latter has exchanged information as well. This means that a client or counterparty that transferred data successfully in one transaction may encounter disruptions with its next attempt. As a result, it is essential for a financial institution to be aware of how parties with whom it exchanges data electronically are addressing Year 2000 problems (p. 2).