Make your own free website on
Recommended Resources Offshore havens, asset protection, global investing and other useful techniques.
The Year 2000 Bookshelf Books to help your evaluate the Y2K problems you face.

Gary North's Y2K Links and Forums - Mirror

Summary and Comments

(feel free to mail this page)




1997-11-17 10:42:56


FED: 90 Million Lines of Code



Edward Kelley, Jr., testified before the House Banking Committee on November 4. He thinks that the Federal Reserve will be A-OK in 2000. Mr. Kelley, who is Alan Greenspan's stand-in on the y2k problem, is a member of the Boad of the FED. He says the FED will "remain vigilant."

His testimony sounds as though it went through revisions by three committes.

What his testimony makes clear is that the enormous magnitude of the FED's financial clearing operations: trillions and trillions.

He also reveals a figure: 90 million lines of code. Think of Social Security: 30 million lines, and they have had 400 programmers working on the repair since 1991. The SSA is not yet compliant.

He does not say how many programmers are working on the FED's project. Recall that a good programmer with software tools can repair about 100,000 lines a year.

He remains silent on foreign banks. He discusses only foreign branches of U.S. banks, which he says may have problems. But if foreign banks don't make it, the international banking system is completely at risk. It does no good to get the U.S. banks compliant if foreign banks aren't. It will destroy the system.

Then there is the entire support system. He admits this much: "In addition, Year 2000 preparations must address many computerized environmental and facilities management systems such as power, heating and cooling, voice communications, elevators, and vaults."

The FED and the banks are dependent on vendors' software, he says. What if they don't fix it? He doesn't say. The FED has zero authority to compel them to do anything on this side of 2000.

The same is true of international banking: no agency can apply sanctions on noncompliant foreign banks prior to 2000.

So, the FED has made a 10-minute video. This will raise awareness.

What is the FED's fall-back position? Fiat money -- all over the world. He said: "Moreover, consistent with current policy, foreign central banks will be expected to provide liquidity support to any of their banking organizations that experience a funding shortfall."

He promises that the FED will be compliant in 2000. Everyone in every organization makes the same promise.

Who guarantees these promises? No one.

* * * * * * *

The Federal Reserve System has developed and is executing a comprehensive plan to ensure its own Year 2000 readiness and the bank supervision function is well along in a cooperative, interagency effort, to promote timely remediation and testing by the banking industry. . . .

The Federal Reserve operates several payments applications that process and settle payments and securities transactions between depository institutions in the United States. Three of these applications are the Fedwire funds transfer, Fedwire securities transfer, and Automated Clearing House (ACH) applications. The first two applications are large-value payments mechanisms for U.S. dollar interbank funds transfers and U.S. government securities transfers. Users of the applications are primarily depository institutions and government agencies.

. . . .. About 10,000 depository institutions use the Fedwire funds transfer system to transfer each year approximately 86 million payments valued at over $280 trillion. The current average total daily value of Fedwire funds transfers is approximately $1.1 trillion.

. . . . About 8,000 depository institutions use the Fedwire securities transfer service to transfer each year approximately 13 million securities valued at over $160 trillion. The average total daily value of Fedwire securities transfers is about $650 billion.

The ACH is an electronic payment service that supports both credit and debit transactions and is used by approximately 14,000 financial institutions, 400,000 companies, and an estimated 50 million consumers. Typical credit transactions include direct deposit of payroll and corporate payments to suppliers. Typical debit transactions include the collection of mortgage and loan payments and corporate cash concentration transactions. The ACH processes transactions in batches one or two days before they are scheduled to settle. ACH transactions are settled through depository institutions’ accounts at the Federal Reserve Banks. Approximately 4 billion ACH transactions were processed in 1996 with a total value of approximately $12 trillion. About 3.3 billion of these payments were commercial transactions; 625 million payments were originated by the Federal government.

The Reserve Banks’ critical applications, such as Fedwire funds and securities transfer, ACH, and supporting accounting systems, run on mainframe computer systems operated by Federal Reserve Automation Services (FRAS), the internal organizational unit that processes applications on behalf of the Federal Reserve Banks and operates the Federal Reserve’s national network. These critical applications are "centralized," that is, one copy of the application is used by all twelve Reserve Banks. In addition to centralized applications on the mainframe, the Federal Reserve Banks operate a range of applications in a distributed computing environment, supporting business functions such as cash distribution, banking supervision and regulation, research, public information, and human resources. The Reserve Banks also operate check processing systems that provide check services to depository institutions and the U.S. government. A national communications network, called FEDNET, supports the exchange of information among the Reserve Banks, FRAS, and external organizations. The scope of the Federal Reserve’s Year 2000 activities includes all of these processing environments and the supporting telecommunications network. . . .

A large cadre of top personnel in the Federal Reserve System have been assigned to this task. Our staff is putting in many extra hours to prepare for testing with customers, planning for business continuity in the event of any unanticipated problems with internal systems, and enhancing our ability to respond to possible Year 2000-related operating failures of depository institutions. Assuring compliance internally is requiring review of approximately 90 million lines of computer code. While there are challenges and a great deal of work before us, I can report that we expect to be fully prepared for the century date change. . . .

According to industry experts, up to one-quarter of an organization’s Year 2000 compliance efforts are devoted to project management. Managing preparations for the century date change is particularly resource-intensive given the number of automated systems to be addressed, systems interrelationships and interdependencies, interfaces with external data sources and customers, and testing requirements. In addition, Year 2000 preparations must address many computerized environmental and facilities management systems such as power, heating and cooling, voice communications, elevators, and vaults. Our Year 2000 project is being closely coordinated among the Reserve Banks, the Board of Governors, numerous vendors and service providers, approximately 13,000 customers, and government agencies.

In 1995, a Federal Reserve System-wide project was initiated, referred to as the Century Date Change (CDC) project, to coordinate the efforts of the Reserve Banks, FRAS, and the Board of Governors. . . .

A significant challenge in meeting our Year 2000 readiness objectives is our reliance on commercial hardware and software products and services. Much of our information processing and communications infrastructure is comprised of hardware and software products from third-party vendors. Additionally, the Federal Reserve utilizes commercial application software products and services for certain administrative functions and other operations. As a result, we must coordinate with numerous vendors and manufacturers to ensure that all of our hardware, software, and services are Year 2000 ready. In many cases, compliance will require upgrading, or even replacing, equipment and software. We have a complete inventory of vendor components used in our mainframe and distributed computing environments, and vendor coordination and system change are progressing well. These preparations also include careful attention to the Year 2000 readiness of telecommunications providers. . . .

The testing effort for Year 2000 readiness within the Federal Reserve will be extensive and complex. Industry experts estimate that testing for readiness will consume more than half of total Year 2000 project resources. . . .

International Awareness

With regard to the international aspects of the Year 2000 issue, U.S. offices of foreign banks pose a unique set of challenges. We are concerned about the possibility that some offices may not have an adequate appreciation of the magnitude and ramifications of the problem, and may not as yet have committed the resources necessary to address the issues effectively. This is a particular concern for foreign bank offices that are dependent on their foreign parent bank for information processing systems. In addition, we are increasingly concerned that the foreign branches of U.S. banks may be adversely affected if counterparties in foreign markets are not ready for the Year 2000. . . .

The Federal Reserve has also produced a ten-minute video entitled "Year 2000 Executive Awareness" intended for viewing by a bank’s board of directors and senior management. The video presents a summary of the Year 2000 five-phase project management plan outlined in the interagency policy statement. In my introductory remarks on the video, I note that senior bank officials should be directly involved in managing the Year 2000 project to ensure that it is given the appropriate level of attention and sufficient resources to address the issue on a timely basis. The video can be ordered through the Board’s Web site.

Contingency Planning

While we will continue our public outreach efforts, our main focus is preparedness. Because smooth and uninterrupted financial flows are obviously of utmost importance, our main focus is on our readiness and the avoidance of problems. But we know from experience that upon occasion, things can go wrong. Given our unique role as the nation's central bank, the Federal Reserve has always stressed contingency planning -- for both systemic risks as well as operational failures. . . .

We recognize that despite their best efforts, some depository institutions may experience operating difficulties, either as a result of their own computer problems or those of their customers, counterparties, or others. These problems could be manifested in a number of ways and would not necessarily involve funding shortfalls. Nevertheless, the Federal Reserve is always prepared to provide information to depository institutions on the balances in their accounts with us throughout the day, so that they can identify shortfalls and seek funding in the market. The Federal Reserve will be prepared to lend in appropriate circumstances and with adequate collateral to depository institutions when market sources of funding are not reasonably available. The terms and conditions of such lending may depend upon the circumstances giving rise to the liquidity shortfall.

Our preparations for possible liquidity difficulties also extend to the foreign bank branches and agencies in the U.S. that may be adversely affected directly by their own computer systems or through difficulties caused by the linkage and dependence on their parent bank. Such circumstances would necessitate coordination with the home country supervisor. Moreover, consistent with current policy, foreign central banks will be expected to provide liquidity support to any of their banking organizations that experience a funding shortfall. . . .

We believe that we are well-positioned to meet our objectives and will remain vigilant throughout the process.


Return to Category: Banking

Return to Main Categories

Return to Home Page