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Alan Greenspan: Don't Worry By Declan McCullagh February 25, 1999
When you read reports of hearings held in the august chambers of the Senate Banking committee, on the fifth floor of the Dirksen building a block north of the US Capitol, keep in mind one thing: legislators don't know that much more about the problem than many of us do. These are, after all, the same senators who confuse computer mice with real-life rodents. Oh, sure, those secret briefings include more details than are made available to the public. But members of Congress generally have no more clue about what causes Y2K than they do about what unnatural force makes Al Gore dance in public On Tuesday, Fed chairman Alan Greenspan -- a former mainframe programmer who, unlike Congressman, seems to grok Y2K -- showed up before the Senate Banking committee. His audience promptly started to quiz him about panic and bank runs. Here's what happened...
Senator Chuck Schumer (D-NY): Let me ask you another question, which you didn't touch on, but would affect the economy next year, and that's about Y2K. You have mentioned, or the Fed has mentioned that our financial institutions themselves are doing quite well in dealing with the problem. But a second and ancillary problem, but a serious one, is that consumers, citizens may be worried about what will happen and that will take their money out of financial institutions towards the second half of next year because -- or of this year because they're worried about this. From what I understand, the Federal Reserve has set aside a certain amount of reserves for the end of 1999 to deal with that. As I understand, it's $50 billion. First, I'm curious to know how you arrived at that number. Second, whether -- what else can be done to increase the public's confidence in how we're dealing with Y2K or how our financial institutions are dealing with Y2K. And do other countries, other industrialized countries face the same problem and are they making the same preparations? Alan Greenspan, chairman of the Federal Reserve: Senator, what we did is to try to make a judgment, which is very difficult because we have no history, of what type of conversion of bank and other type of deposits into currency might be made for those who are fearful that their ability to draw currency over the year end will somehow be somehow inhibited. And we know we've got enough currency to meet any conceivable demand. Strangely, the concern that I have is I'm worried that people are going to draw too much out, and walking around with a lot of hundred dollar bills is not the safest way -- it's not the safest means to keep your money. Schumer: Right. Greenspan: And I'm a little concerned that they may worry about Y2k, and things may break -- you know, somehow something's going to break down. Schumer: Right. Greenspan: One thing we're sure of is they will not lose any money because our computer systems are not going to crash in that regard. The major danger is I'm getting increasingly concerned that they'll draw out money and there's going to be an awful lot of people who are going to be interested in that. (Laughter.) Schumer: I won't ask you to name names. It'll take too long, I guess. But I do think it might be a good idea to let people know of the Federal Reserve's, I think very prudent policy of keeping aside a certain amount of reserves in case something happens, and that would bolster people's confidence. Greenspan: We are on a two-pronged policy. One, do as much as we can -- and we've done an awful lot and we'll continue to do -- to prevent anything of significance happening where we have the capability of double-testing and checking as we can. And secondly, to have a whole series of potential actions we would take in the event that something does happen. And we will be doing that obviously in an increasing manner through the rest of the year. Things, I must say, are going better than I was concerned about six months ago. People are getting serious. We are interrelating with all of our banks, and the testing systems are going well, so that the worst possibilities I think are behind us. And most of those really are interfaced with the rest of the world where we don't really know how well they are managing. Schumer: One final question -- Senator Phil Gramm (R-Tex.), committee chairman: Hold it. I'm going to have to stop you because we've got a luncheon for this side of the aisle at 12:00... Senator John Edwards (D-NC): One last question. I was very interested in your comments about Y2K and Americans' concerns about Y2K. What advice would you give a senior citizen in the United States in December of this year about what to do with their savings account? Greenspan: I would say the most sensible thing is to leave it where it is. That's probably the safest thing. There's almost no conceivable way in which I can envisage that computers will break down and records of people's savings accounts will disappear. I mean, that's not what the problem is. That's easy to prevent happening, and everyone will do that. And there is, fortunately, so many different checks and balances that if it gets knocked out in one place, it's available 20 other places. The real problem, basically, is to the issue as to whether in fact a usual means of withdrawing currency will be blocked by whether technology breaks down, whether something freezes up, whether or not the safe in the bank can't be opened or something like that. That's a really minor concern that I'm aware of. And while I do not deny that if you have currency rather than the money temporarily locked up in your bank because the doors don't open, your money is perfectly safe. You just can't get it. It's an issue as to whether you are safer taking it out and waving it around or whether you're better to just leave it there. Sen. Edwards: Thank you, Mr. Chairman.
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