Bank is prepared for Y2K cash rush

By Adam Gifford

The Reserve Bank's decision to lift liquidity requirements from banks over the millennium changeover has averted a serious tightening in credit this year, according to ASB Bank chief executive Ralph Norris.

The Reserve Bank last month said if there were "irrational and extreme demand" for cash at the end of 1999, it would ensure that there were enough bank notes and lend, unsecured if necessary, the banks the money to buy those additional bank notes.

"It was a good decision, or banks could have refrained from lending from about August so they would have enough liquidity in the system," Mr Norris told yesterday's Auckland City Council Y2K forum. "We are prepared for a larger outflow of cash."

However, Mr Norris stressed there was no need for any stockpiling of cash by customers. The country's banks were well advanced in their preparations for year 2000, and recent inter-bank testing only uncovered two bugs to be fixed.

Systems controlling credit and debit cards, term deposits and loans were already using dates in the next century. "There is a high level of confidence," he said.

Contingency plans are in place if there is a demand for cash. The Reserve Bank's decision to hold on to paper currency during the changeover to plastic notes means New Zealand will have higher reserves of cash per capita than most other countries.

He said patterns of cash usage over the period are likely to change, so areas which did not usually hold high levels of cash, such as the beach settlements New Zealanders flock to at that time, would need to be taken care of. Service people may be needed to load ATMs if there is higher demand than usual.

"I think the country will be in very good shape. The major risk is public panic, not Y2K itself," Mr Norris said.

Year 2000 Commission chairman Basil Logan told the forum too many companies were relying on suppliers' advice that systems are compliant, rather than doing their own testing.

He said there were poor communications with the supply chain, and half the businesses contacted by the commission believed they did not need a continuity plan.