Y2K track record of banks abysmal

By Rod Oram

Between the lines

Come New Year's Eve, how much money will you take out of your bank? $100 for a modest night out? $1000 for a millennium-sized bash? Or every dollar you possess?

Over the past few weeks, the Reserve Bank has begun a campaign to convince the public that the third choice is irrational. It says your money is safer in the bank than out.

The Reserve Bank says it and the banking industry are confident that they are on top of Y2K bugs.

Even if some unforeseen event jammed up the system, it would be quickly fixed.

And even if the fix took longer, the inconvenience would be minor.

Problems with power, water or sewerage would be worse.

The bottom line is: banks won't fail, computer records will be safe and your money will still be on deposit.

However, the Reserve Bank acknowledges people might want some extra cash for a good party or "just in case."

To that end, the banking system will have $6.5 billion of cash on hand against the normal $4 billion.

So, it argues, the issues are not technological, only psychological. The only thing to fear is fear itself. If enough people, unconvinced by these arguments, withdrew very large sums of money then the banking system and society could suffer unnecessary stress over where to get and stash cash.

In other words, what people think can change the world, can in itself cause a problem. This makes the banking system very different from, say, the power system. Consumers can't hoard electricity so they can't stress themselves or the national grid.

In its efforts to keep the public rational, the Reserve Bank has cast the media in a leading role.

It says the responsibility is on us to portray the issues in a fair and measured way to ensure the public responds appropriately.

But this view ignores the fundamental truth.

The crucial relationship is not between the media and the public but between banks and the public. Banks have to build their customers' confidence in the quality of their systems.

So far the banks have done an abysmal job.

All they've told their customers and the media is: "Don't panic; we're fixing everything; and no matter if we don't - you'll have enough cash to get by until we do!"

The banks have refused to disclose the detail of their Y2K work. The industry is finishing its system tests this month but, based on its track record, it is unlikely to say more than, "Yep, everything's fine."

The public can have little trust in an industry that declines to take its customers into its confidence.

Yes, words are critical to shaping the public's banking behaviour. But so far the banks are mute. And in that silence, public anxiety will grow.