This is the transcript of the September 21 speech by the President of the New York Federal Reserve, the most important of the FED's branches. It is quite frank -- amazingly so. In the next-to-last paragraph, he writes:
"Getting the Year 2000 issue right is critical for every organization. Failure to get it right will affect the integrity of the payments system and the performance of the domestic, and maybe even the global, economy."
Amen to that!
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Today, I am sure that I do not have to convince you about the inevitability of the approaching century date change. It is a certainty. What remains for me to do is to help put the dimension of the Year 2000 issue in perspective and suggest some of the actions that are necessary now if we are to avoid potentially serious problems down the road. . . .
Financial institutions depend on the proper sequencing of events and calculations based on dates, but the logic built into applications to sequence events and perform calculations will not work properly when we hit 2000. As a result, Year 2000 issues pervade every business area of all financial and non-financial institutions.
As if that were not enough, the problem is not just limited to the business lines and the applications upon which businesses rely. Operating systems and the equipment on which business applications run also are reliant on microchip-embedded logic affected by two-digit year representations. Unlike business applications where the dates usually are visible, potential problems in operating systems and equipment usually are invisible or embedded in programs. That means that banks and other institutions must rely on vendors, rather than their in-house technical staff, to identify and fix the problems. Similarly, mechanical devices used in security systems, elevators, and heating and cooling equipment controlled by microchips can be affected and may even cease to run. . . .
Continual testing, however, will consume a very significant amount of resources, usually drawn from business line areas. Consultants estimate that testing alone will absorb as much as 70 percent of Year 2000 project resources at some institutions.
The Year 2000 issue stretches well beyond the doors of financial services companies. Your customers and counterparties also must cope. How well they handle this complex and costly technical challenge could affect their business prospects and even their viability. Consequently, over the next couple of years, underwriting standards should specially consider how customers are addressing the issue, and credit officers should monitor the progress of customers who rely on technology on a regular basis.