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1997-08-06 11:33:52


A Gigantic Confidence Game Is About to End



Andrew Hove, the Acting Chairman of the Federal Deposit Insurance Corporation, told the Senate Banking Committee what lies at the heart of modern banking -- and I do mean LIES. It is confidence. The public must have confidence in the banking system.

But what if the numerous y2k threats undermine public confidence? This is what bank regulators must prevent at all costs, all over the world. When I say, "at all costs," I mean "up to their ability to pay." But international bank runs will prove unstoppable when public confidence fails. When a housewife senses that her life's savings are at risk in a bank whose computer may go down, why will she keep her money in the bank? Obviously, she won't. That is why bank runs are inevitable. As y2k gets more and more press, with more and more warnings, the panic will spread. Public confidence will disappear, thereby ending a confidence game going back over three centuries.

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While the FDIC is not prepared to predict, at this time, whether any institution may fail as a result of Year 2000 problems, we will be ready to intervene should an institution's viability be threatened by an inability to maintain accurate books and records. In order to be prepared for the possibility of failures, our contingency planning process will include analyzing how the FDIC's traditional resolution and receivership methods would be affected by this type of problem. No matter what difficulties financial institutions may encounter, each depositor will remain fully insured up to the $1 00,000 limit. Maintaining consumer confidence in the U.S. banking system will be our primary goal in this contingency planning process (p. 6).


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