Banks assured of cash for 2000

By Richard Braddell

WELLINGTON - The Reserve Bank has assured banks of extra cash in case customers withdraw their savings before the new millennium.

While the Reserve Bank is adamant that the banking system is well prepared for any year 2000 difficulties, it took the unusual step of saying it would lend money unsecured to banks if people withdrew large amounts of cash.

The move should give banks the comfort to keep lending and other activities at normal levels because they will not have to accumulate large pools of cash or liquid Government securities.

"We don't want a credit crunch or a liquidity crunch or any other kind of a crunch out of irrational fears of a need to hold extra bank notes," said David Archer, the Assistant Governor of the Reserve Bank.

It has already indicated that it will have more cash on hand at the millennium because it will not destroy the $20 notes withdrawn from next month when plastic notes are issued.

The bank decided against taking home mortgages as security for the cash. It felt that unsecured lending was safe enough, particularly when weighed against the cost and time needed to secure mortgage portfolios.

But the unsecured lending is a last resort and it will first offer to buy foreign currency held by the banks.