Mr. Patrikis discusses the implications of the Year 2000 computer problem for international banking and finance Statement by the First Vice-President of the Federal Rese Bank of New York, Mr. Ernest T. Patrikis, before the Committee on Banking and Financial Se of the US House of Representatives on 23/6/98.
I am pleased to appear before the Committee today to discuss the implications Year 2000 computer problem for international banking and finance. I am appearing in my ca as Chairman of the Joint Year 2000 Council, which is sponsored jointly by the Basle Commit Banking Supervision, the G-10 central bank governors' Committee on Payment and Settlem Systems, the International Association of Insurance Supervisors, and the International Or of Securities Commissions (collectively referred to as the 'Sponsoring Organizations').
The international financial community has much work to do to prepare itself f challenges posed by the Year 2000 ('Y2K') problem. While much good work is being done a progress in many areas is evident, more needs doing. The Sponsoring Organizations belie mutual cooperation and information sharing can play a key role in helping individual participants carry out these preparations and limit the scope of Y2K-related disruptions. concern, of course, will be the possible impact of the Y2K problem on the functioning international financial system as a whole.
Federal Reserve Governor Edward W. Kelley, Jr. has recently elaborated on activities of the Federal Reserve System in connection with the Y2K problem, as well on macroeconomic implications. 1 I will not attempt to cover those topics again here. Instead morning I will begin with some background on the possible implications of the Y2K proble international banking and finance. Second, I will describe how various supervisory initiat the formation of the Joint Year 2000 Council a little more than two months ago. Third, I w the actions being taken by the Joint Year 2000 Council, particularly in the areas awareness, improving preparedness, and contingency planning.
## Background on the International Implications of the Y2K Problem
The Y2K bug potentially affects all organizations that are dependent on com software applications or on embedded computer chips. In other words, nearly all fi organizations worldwide are potentially at risk. Even those whose own operations remain paper-based are likely to be dependent on power, water, and telecommunications utilitie must themselves address possible Y2K problems. Also, many non-financial customers h dependencies on technology.
All countries of the world, therefore, need to address the Y2K problem an potential effects on their domestic financial markets. In some cases, it is said that comp in particular countries are not much affected because their national calendars are not b conventional Gregorian calendar used in the United States and many other countries. I do n much comfort from these statements because in most cases operating systems and the sof applications running on them count internally with a conventional date system that may Y2K-compliant. These systems typically also need to connect and interact with other syst use conventional dates, so these interfaces must be tested for Y2K-compliance. More broadl assertions that computer applications are unaffected cannot be seen as a substitute for
1
See Testimony of Governor Edward W. Kelley, Jr. Before the Committee on Commerce, Science, and Transportation, U.S. Senate. April 28, 1998.
assessment, remediation, and testing efforts that should be undertaken by financial participants worldwide.
The increasing extent of cross-border, financial-market activity has been remarked on in recent years. Perhaps less well known is the fact that this activity is de large, geographically diverse, and highly computer-intensive global infrastructure for each phases of this activity -- from trade execution through to payment and settlement.
As an example, consider the daily financial market activities of a hypot US-based mutual fund holding stocks and bonds in a number of foreign jurisdictions. Such a fund would likely execute trades via relationships with a set of securities dealers, who might make use of other securities brokers and dealers, including some outside the Unite The operational integrity of the major securities dealers in each national securities mark to the smooth functioning of those markets. In addition, securities trading in most countr on the proper functioning of the respective exchanges, brokerage networks, or electroni systems and the national telecommunications infrastructure on which these all depend. F markets today are also highly dependent on the availability of real-time price and trade provided by financial information services.
For record-keeping, administration, and trade settlement purposes, our hypoth mutual fund would also likely maintain a relationship with one or more global custodians brokerage firms), who themselves would typically maintain relationships with a netwo sub-custodians located in various domestic markets around the world. Actual settlement of transactions typically occurs over the books of a domestic securities depository, su Depository Trust Company ('DTC') or the Fedwire National Book-Entry System in the Unit States, or at one of the two major international securities depositories, Euroclear Additional clearing firms, such as the National Securities Clearing Corporation ('NSCC') Government Securities Clearing Corporation ('GSCC') in the United States, may also oc central roles in the trade clearance and settlement process.
Payments and foreign exchange transactions on behalf of the mutual fund wo involve the use of correspondent banks, both for the US dollar and for other relevant c These transactions would typically settle over the books of domestic wholesale payment s such as the Clearing House Interbank Payments System ('CHIPS') or Fedwire in the United St and the new TARGET system for the euro. Correspondent banks are also heavily dependent on use of cross-border payments messaging through the network maintained by the Society Worldwide Interbank Financial Telecommunications ('S.W.I.F.T.') to advise and confirm payme To provide some sense of the magnitudes involved here, consider that the Fedwire and systems process a combined $3 trillion in funds transfers on an average day (split rough between the two systems). While S.W.I.F.T. itself does not transfer funds, its messaging carries over three million messages per day relating to financial transactions worldwide.
The many interconnections of the global financial market infrastructure impl financial market participants in the United States could be affected by Y2K-related disr other financial markets. In assessing the scope of any such potential problems, we should b in accepting that some disruptions are inevitable, while also recognizing that not al confront Y2K problems of similar magnitudes. The problem simply affects too many organiza and too many systems to expect that 100 percent readiness will be achieved throughout th Nor are the best efforts of supervisors and regulators capable of completely eradicating disruption. Ultimately, the work of fixing the Y2K problem rests with firms themselves, some of the most determined and well-funded Year 2000 efforts may miss something. Global Year 2000 Round Table
Recognizing the global nature of the issues surrounding the Y2K problem, eac the Sponsoring Organizations undertook initiatives in 1997 to raise awareness, enhance di and prompt appropriate action within the financial industry. Their decision last fall t Global Year 2000 Round Table was motivated by a growing sense of the seriousness of the challenges posed in many countries and of the potentially severe consequences for financia that fail to meet these challenges. The Global Year 2000 Round Table was held at the B International Settlements on April 8, 1998. It was attended by more than 200 senior execut 52 countries, representing a variety of private and public organizations in the financial technology, telecommunications, and business communities around the world. 2
The discussions at the Round Table confirmed that the Y2K issue must be a priority for directors and senior management, and that the public and private sectors shou efforts to share information. The importance of thorough testing, both internally counterparties, was emphasized as the most effective way to ensure that Y2K problem minimized. Round Table participants identified the need to continue the widening and stren of external testing programs in many countries.
The communiqué issued by the four Sponsoring Organizations at the close of Round Table recommended that market participants from regions that have not yet vigor tackled the problem should consider the need to invest significant resources in the shor remains. The Sponsoring Organizations further recommended that external testing program developed and expanded and that all financial market supervisors worldwide should impl programs that enable them to assess the Y2K readiness of the firms and market infrastruct they supervise. The Sponsoring Organizations urged telecommunications and electricity provi share information on the state of their own preparations and encouraged market particip supervisors and regulators to consider the need to develop appropriate contingency procedur
At the Round Table, a new private-sector initiative known as the Global Coordinating Group was announced. The aims of the Global 2000 effort are to identify and coordinated initiatives by the global financial community to improve the Y2K readiness of markets worldwide. For example, current Global 2000 projects include the developmen recommendations for financial infrastructure testing and guidelines for addressing Y2K com issues related to vendors and service providers. The Global 2000 Coordinating Group, includes representatives from over 75 financial institutions in 18 countries, represents valuable private-sector attempt at cooperation on this important issue. At the same time the international financial supervisory community recognized that it would be useful to e public-sector group, called the Joint Year 2000 Council, that would work with the private also maintain a high level of attention on the Y2K problem among financial market supervis regulators worldwide.
2
A videotape containing highlights of the Global Year 2000 Round Table is available free of charge from the Bank for International Settlements. Please contact the Joint Year 2000 Council Secretariat at the Bank for International Settlements, Centralbahnplatz 2, CH-4002 Basle, Switzerland. (telephone: 41 61 2808432, fax: 41 61 280 9100, email: jy2kcouncil.bis.org) The Federal Financial Institutions Examinations Council ("FFIEC") has also placed the entirety of this videotape on its web site, where it is available for downloading in whole or in part. Please see http://www.bog.frb.fed.us/y2k/video\_index.htm#19980408
## Joint Year 2000 Council
The formation of the Joint Year 2000 Council was announced at the end of Global Year 2000 Round Table on April 8, 1998. The Joint Year 2000 Council consists of members of the four Sponsoring Organizations. Every continent is represented by at le member on the Council. The Secretariat of the Council is provided by the Bank for Inter Settlements. I am honored to serve as the Chairman of the Joint Year 2000 Council.
The mission of the Joint Year 2000 Council has four parts: First, to ensure level of attention on the Y2K computer challenge within the global financial supe community; second, to share information on regulatory and supervisory strategies and appr third, to discuss possible contingency measures; and fourth, to serve as a point of c national and international private-sector initiatives. After their meetings on May 8-9, 1 finance ministers called on the Joint Year 2000 Council and its Sponsoring Organizations t the Y2K-related work in the financial industry worldwide and to take all possible steps to readiness.
The Council has met twice since being formed in early April and plans to frequently, almost monthly, between now and January, 2000. At our first meeting, we organi work projects and approved our mission statement. At our second meeting, we met for the fi with an External Consultative Committee consisting of international public-sector and priv organizations. Meeting with this External Consultative Committee is intended to enhance th of information sharing and the raising of awareness on different aspects of the Year 2000 p both public and private sectors within the global financial markets.
The External Consultative Committee includes representatives from internati payment and settlement mechanisms (such as S.W.I.F.T., Euroclear, Cedel, and VISA), international financial market associations (such as the International Swaps and De Association, the International Institute of Finance, and the Global 2000 Coordinating Gro multilateral organizations (such as the IMF, OECD, and World Bank), from the financial agencies (such as Moody's and Standard & Poor's), and from a number of other internat organizations (such as the International Telecommunications Union, Reuters, the Inter Federation of Accountants, and the International Chamber of Commerce). This diversit perspectives led to an extremely valuable discussion with the Joint Year 2000 Counc stimulated work on several projects to be taken forward with input from both the public an sectors, for example, the initiatives on Y2K testing and self-assessment that I will desc Further sessions with the External Consultative Committee are planned on a quarterly basis.
It is important at the outset for me to be clear that the Joint Year 2000 Coun intended to become a global Y2K regulatory authority, with sweeping powers to coord international action or to take responsibility for ensuring Y2K readiness in every finan worldwide. Through our ability to serve as a clearinghouse for Y2K information, however, I that the Joint Year 2000 Council will play a positive role in three areas: (1) raisin (2) improving preparedness, and (3) contingency planning. In the next portion of my rem would like to address each of these roles in turn.
## Efforts to Promote Awareness
The Joint Year 2000 Council is undertaking a series of initiatives that described under the heading of promoting awareness. By this term, I do not mean to inclu those initiatives aimed at raising general awareness, although that too is still needed in mean to include efforts to promote better awareness of the many efforts currently under
tackle the Y2K problem. I have found that, while many organizations are working hard on aspects of the Y2K challenge, in many cases these efforts would be enhanced by a greater d information sharing with others. For example, at the Federal Reserve Bank of New York, we been holding quarterly Y2K forums with a diverse set of financial organizations in t Participants have requested that we continue to hold these meetings -- in fact, to hold more frequently -- because they believe that the contacts and the exchange of views are beneficial. We hope to use the Joint Year 2000 Council to achieve similar goals.
Each of the members of the Joint Year 2000 Council has committed to help pla leading role in promoting awareness of Y2K initiatives within their region. Each of us wi coordinating regional Y2K forums or conferences and will publicly promote the goals of t Year 2000 Council in speeches and on conference programs.
The Joint Year 2000 Council will also maintain extensive world-wide-web pages can be accessed freely over the Internet. 3 These pages are being maintained through the support the Council has received from the Bank for International Settlements, in particular from th Manager, Andrew Crockett. These web pages will maintain current information on the activi the Joint Year 2000 Council.
The most extensive aspect of the Council's web site will be a series of pages, one for each country in the world. For each country, the page will contain contact i for government entities (including national coordinators), financial industry superv regulators (including central banks, banking supervisors, insurance supervisors, and regulators), financial industry associations, payment, settlement and trading systems, c commerce, and major utility associations or supervisors. For each of these organizations address, phone number, fax number, electronic mail and web site address will be provided relevant information on an organization's Y2K preparations may also be included, for e whether it has a dedicated Y2K contact or has taken specific action with respect to problem.
The motivation for developing these country pages is to increase awareness o work that is being done to address the Y2K problem and to enable market participants to ea out more information about the state of preparations worldwide. Establishing these nationa will also help to develop the informal networks and arrangements that may be needed in ad other Y2K-related issues, for example, in formulating contingency measures. Finally, of co presence of the country pages may exert pressure on those countries where more vigorous a needed. A blank or uninformative country listing would probably not be seen as a good sign financial market participants.
In addition, the web pages of the Joint Year 2000 Council will also pr summaries of the efforts being undertaken by its Sponsoring Organizations as well as lin relevant web sites. For example, reports on Y2K surveys of supervisors and regulators undertaken by the Basle Committee on Banking Supervision and by the International Organiz of Securities Commissions are planned to be made available on the Joint Year 2000 Counci site. Public papers produced by the Joint Year 2000 Council will also be available on the listing of international conferences and seminars related to Y2K will be posted on the together with links to other Y2K web sites and documents.
At this stage, each member of the Joint Year 2000 Council is in the proce finalizing the country page for its respective country. Last week, I wrote to every contact
3 The web pages of the Joint Year 2000 Council can be reached at the web site of the Bank for International Settlements (www.bis.org). These pages will also be registered under the name jy2kcouncil.org in the near future.
the four Sponsoring Organizations (almost 600 contacts in over 170 countries), asking for in coordinating the development of their country page. This also provided a further oppo raise the awareness of the Year 2000 problem at the most senior levels of financial authorities and supervisors in countries around the world. Through the effort to develop th and other similar efforts by the Joint Year 2000 Council, I believe we can succeed at k awareness of the issue at a very high level within the global financial supervisory communi
## Efforts to Improve Preparedness
Of course, awareness of the Year 2000 problem is only the first step in addres Global efforts to prepare for Year 2000 vary widely, and many countries believe tha coordinated national action will be necessary to tackle the problem as effectively as poss second meeting of the Joint Year 2000 Council, a strong consensus emerged that a na government body in each country could play a helpful role in coordinating preparations f While the Council did not have a strong view on what particular form or what specific autho a body would require in each specific country, the Council members felt strongly that invol some fashion by the national government could be beneficial.
Accordingly, the Joint Year 2000 Council plans to issue a statement in the near providing general support for the concept of a national-level coordinating body for problem. In the United States, of course, the White House has established the President's Year 2000 Conversion, headed by John Koskinen. This effort, as well as those of this co under the leadership of Chairman Leach, and of the other Congressional committees tha addressed the Y2K problem, has shown that national government bodies have a very importan useful role to play in encouraging progress in addressing the Y2K problem.
Turning now to the question of how financial supervisors can implement effec Y2K programs, the Joint Year 2000 Council intends to promote the sharing of strategi approaches. For example, the Basle Committee on Banking Supervision has prepared a p containing 'Supervisory Guidance on Independent Assessment of Bank Year 2000 Preparation This document is aimed at moving supervisors worldwide from a level of general awareness specific, concrete program of action for overseeing Y2K preparations, both on an individ basis and on a system-wide basis.
The Joint Year 2000 Council intends to adapt this paper for use by financial regulators and supervisors more broadly and to issue it as rapidly as possible with the e of all four Sponsoring Organizations. The goal will be to provide guidance in developing Year 2000 action plans for all types of financial market authorities. Supervisors in co have gotten a head start on the issue can thereby provide the benefit of their experience are starting later. Those supervisors getting a late start have a need for tools of this t
The Joint Year 2000 Council will also be working with the members of our Exte Consultative Committee, particularly the Global 2000 Coordinating Group, to build on thi and develop a Y2K self-assessment tool that could be used broadly by the financial ind countries around the world. We also intend to develop additional papers on a variety of Y that might be of interest to the global financial supervisory community.
At this point, I am sure that members of the Committee have questions regardin state of Y2K preparations in various parts of the world. I think that it is fair to say tha spectrum exists, with the United States at one end of the spectrum, and emerging mark undeveloped countries at the other end. There are likely exceptions of course; some d
countries are probably less far along than they should be. Some emerging market countries other hand, appear to be quite advanced in their preparations.
Overall, however, there is still not nearly enough concrete, comparable infor on the preparations of individual institutions to be able to make any confident statement state of global preparations in any detail. Over the time remaining until January 2000, we the Joint Year 2000 Council as a means of gathering a better picture of the state preparations, and to help direct resources and attention to those regions that appear to b their efforts. We will use the information provided for our web site and the discuss members of our External Consultative Committee as our primary resources in seeking to i 'hot spots' where more urgent efforts are needed.
If we identify regions where more needs to be done, our first step will be through the relevant national financial supervisors and regulators to increase the urgency their jurisdiction. We may also involve multilateral institutions, such as the World Ba increase national attention on the issue. I do not believe that calling public attention specific countries would be a constructive step for us to take at this stage as we are build cooperation and our current information is incomplete. In this context, I would als that the market itself will begin to bring strong pressures to bear on specific firms and exhibit signs of being ill-prepared during the course of 1999.
In conjunction with preparations for Y2K, the recent discussion of the Join 2000 Council with the External Consultative Committee raised several important issues. every national market there is the question of the dependence of the banking and financial core infrastructure such as telecommunications, power, water, sewer, and transportation. In it seems that it is not an everyday occurrence for representatives of these differing s together with financial sector representatives and discuss their mutual concerns. Yet, t made a priority if financial firms and their counterparties are to achieve comfort tha efforts to prepare for Year 2000 will not be compromised by the failures of systems beyo control.
A representative of the International Telecommunications Union is a member of External Consultative Committee. At our meeting earlier this month, he provided useful information on the preparations being undertaken by telecommunications firms and indicated further global survey and report on this topic is due to be completed soon. This is t information sharing that helps all parties understand the scope of the problem, as well a that others are undertaking. We intend to encourage further information sharing betw financial sector and core infrastructure providers at future meetings of the Joint Year 2 and the External Consultative Committee. I would also strongly encourage such mutual coope on Y2K preparations within each national jurisdiction.
Another issue that some participants in our Joint Year 2000 Council are conc about in regard to preparations in their countries relates to the availability of human some regions, the supply of available information technology professionals may be hard-pr meet the challenges posed by Y2K. For each organization facing resource constraints, this clearly indicates the need to develop action plans for Y2K that set clear priorities among projects.
More broadly, we must also recognize that the lack of available programm resources will be a significant overall constraint on the scale of Y2K remediation efforts a result, the cost of hiring computer professionals capable of addressing the problem will rise. Wealthy countries are undoubtedly in a better position to bear these increasing co poor countries.
A number of participants from our External Consultative Committee cited the r grant of £10 million sterling by the British Government to the World Bank as a p development. Among other projects, the World Bank intends to use this grant to fund a va educational and awareness-raising events related to Y2K over the next several months. Gi potential consequences of a failure to prepare for Y2K, the World Bank indicated to the J 2000 Council that it intends to take on an aggressive role in promoting and assisting Y2K countries around the world. The Joint Year 2000 Council intends to work closely with th Bank to enhance our mutual efforts on the Y2K problem.
The subject of appropriate Y2K disclosure was also discussed by members of External Consultative Committee. Many of those present agreed that greater disclosures w helpful. However, there was skepticism that a standardized disclosure format would be eff eliciting meaningful information for a wide class of financial firms, given the complexity of Y2K issues facing these firms worldwide. It was also noted that disclosure which relies on a firm's own subjective assessments of its Y2K problems inevitably will suffer from an o bias.
In addition, most Y2K efforts will not reach the serious testing phase until 1 purpose of the testing will be to uncover areas where additional work is required, so th round of tests can be expected to encounter problems. In this environment, it may be dif firms themselves to assess the true state of their Y2K preparations. Also, firms who belie going to be ready will be directed by legal counsel not to make too strong a statement liability claims in case of unforeseen problems. On the other hand, firms that do not beli get ready in time will seek to avoid stating this clearly to protect their activities duri of these reasons, I am doubtful that specific, reliable information on the state of Y2K pre individual firms worldwide will become publicly available.
Finally, in the area of improving preparedness, I have saved the most importan for last -- namely, testing. Testing programs, particularly external testing programs, ar regarded as the most critical element of serious Y2K preparations in the financial sector Year 2000 Council encourages all firms and institutions active in the financial markets to internal and external testing of their important applications and interfaces. To this end payment and settlement systems around the world have developed extensive testing program procedures for their participants. In the United States, for example, Fedwire, CHIPS, and have coordinated shared testing days for the purpose of testing the major international payments infrastructure for the US dollar. The Securities Industry Association ('SIA') ha the forefront of an ambitious program to develop a coordinated industry-wide test of all the trading and settlement infrastructure for the US stock market. The FFIEC's efforts have extremely beneficial in stressing the importance of testing within the banking sector gener
Yet, external testing programs globally need to be dramatically extended expanded. To that end, the G-10 Committee on Payment and Settlement Systems last year star collect information on the state of preparedness and testing of payment and settlement worldwide. To date, over 150 systems in 47 countries have responded to the framework and such plans. 4 The Joint Year 2000 Council intends to expand the coverage of this framewor exchanges and trading systems, as well as major financial information services providers, to expand the number of countries and systems that are included. We will also collate and p information graphically to help highlight anomalies in testing schedules, and to facilitat of systems to coordinate test scheduling where feasible.
4
Primarily, I see this as an exercise in peer pressure. If we list every cou world on our web site and the public can see that some countries have scheduled mandatory tests of their major trading and settlement systems, while other countries do not pr information, that second country may come under greater pressure to organize an external program. This is our stated goal. We will simply have blanks for those countries that do n to our requests for information.
Of course, if the Joint Year 2000 Council is going to encourage testing to extent, then it is only appropriate that we also help provide some tools for those countr get a serious testing effort underway in a short amount of time. This is another of our h projects. We will be working with members of the External Consultative Committee -- inc representatives of the Global 2000 Coordinating Group, S.W.I.F.T., and the World Bank -- to develop a series of documents that help countries set up testing programs and overcome c obstacles. We intend to issue these documents broadly by the end of the summer, and some well before that.
In closing this section of my statement, I do not think it is possible to over the importance of testing to help improve readiness. To illustrate this point, I would lik our experiences with Fedwire, the Federal Reserve's wholesale interbank payments system. Mu the current Fedwire software application was written in the last five years, with the Y2K mind. Nevertheless, some of the older software code that was carried over into the new ap was not Y2K-compliant. Without the rigorous internal Y2K testing program that the Federal R adopted, our Y2K remediation efforts might, therefore, have been incomplete. I think experience whenever I hear it said that some countries are immune to Y2K because they hav recently introduced information technology and that recent software programs are less af Y2K. I ask whether those programs have truly been thoroughly tested for Y2K compliance.
## Contingency Planning Efforts
The third major role of the Joint Year 2000 Council will relate to conti planning. In this context, I should note that contingency planning is something that mos market authorities, particularly central banks, undertake regularly with regard to a wid potential market disruptions. Most private-sector financial firms, as well, have well contingency and business continuity plans in place for their operations.
Nevertheless, it is clear that contingency planning for Y2K problems has a num unique characteristics. First, of course, is the fact that one cannot rely on a backup com Y2K contingency if that site also uses the same software that is the cause of the Y2K prob main site. In some cases, it is impractical to build a duplicate software system from scrat provide for Y2K contingency. In these cases, as a senior banker explained at one of our N Y2K forums, contingency planning amounts to, 'Testing, testing, and more testing.'
Contingency planning can also be separated into components that are firm-spe and those that are market-wide. Each individual firm will need to develop its own continge designed to maintain the integrity of its operations during the changeover to the Year FFIEC has recently issued guidance to banks in the United States regarding the core ele their own contingency planning. 5 The Joint Year 2000 Council will also be developing a paper contingency planning for the benefit of the global financial supervisory community. This p seek to address firm-level contingency as well as issues of market-wide contingency.
Market-wide contingency refers to the planning by participants and supervisors to ensure that individual disruptions can be managed in ways that will prevent them from disruptions to critical market infrastructures. For instance, we at the Federal Reserve great lengths to ensure that barriers are in place to prevent Y2K problems with a Fedwire from causing problems on the Fedwire system itself. We are also now actively researching ad steps that the Federal Reserve could take to better prepare the financial markets as function in spite of disruptions at individual firms.
It is also important to realize that contingency planning for Y2K is not s operational issue. Financial firms may seek to adopt a defensive posture in the marketp ahead of Monday, January 3, 2000 (the first business day of the new year in the United St example, market participants may seek to minimize the number of transactions that wou scheduled for settlement on January 3 or January 4, or that would require open positio maintained over the century date change weekend.
Contingency planning involves a series of elements, many of which must be pu place well before January 2000. For example, we must consider many possible sources of dis and determine what approaches could be available to limit the impact of each possible di The sooner such thinking occurs, the more opportunity we have to plan around the po disruptions. In this context, members of our External Consultative Committee noted that o key obstacles to effective contingency planning is the inability to list and consider disruption scenarios. Several of these participants noted that their firms were engaging co other procedures to expand the number of scenarios for inclusion in their Y2K contingency p
In New York, we will be using our Y2K forum next month to discuss contingenc planning with a diverse set of market participants. These local market participants wi helpful insights for the Joint Year 2000 Council. Clearly, more work is needed on con planning for Y2K, especially at the international level. Once we get beyond the early fall I believe that these efforts will begin to receive much greater focus and attention, and with testing -- will dominate our discussions of Y2K during 1999.
## Closing Remarks
In closing, I would like to thank the Committee for the opportunity to appe submit a statement on this important issue. I hope that the efforts of the Joint Year 2000 help to make a difference in improving the state of Y2K preparations in the internationa community. Realistically, however, I believe that it is important to understand the lim financial market supervisors can accomplish, either individually or collectively. On themselves have the ability to address the Year 2000 problems that exist within th organizations. Only firms working together can assure that local markets will function Supervisors and regulators cannot guarantee that disruptions will not occur.
Given the sheer number of organizations that are potentially at risk, it is that Y2K-related disruptions will occur. Today it would be impossible to predict the prec of these disruptions. However, we do know that financial markets have in the past surviv other serious disruptions, including blackouts, snow storms, ice storms, and floods. We have a very interesting case at the end of this year with the changeover to monetary union We will all be watching carefully to see whether the extent of operational problems rela event is greater or less than expected.
I would also like to say at this point that my discussions with other member Joint Year 2000 Council and with members of the External Consultative Committee have convi me that successful efforts to address the Y2K problem will be dependent on the credibilit calling for action. Those of us - such as members of this Committee as well as oth Congress - who are seriously engaged and concerned need to be able to persuade others of th to take appropriate actions promptly. It would be unfortunate if general perceptions of problem are driven primarily by unofficial commentators whose rhetoric is seen to exceed on which it is based, and therefore easily dismissed.
As a central banker and bank supervisor, my major concern must be with the sy as a whole. At this point, I believe that we are doing everything possible to limit the p Y2K disruptions will have systemic consequences in our markets. However, we must all conti work hard -- both individually and cooperatively -- in the time that remains to ensure tha does not become more concrete.
In that spirit, Mr. Chairman, I would like to end my remarks by commending Committee for organizing these hearings on the implications of the Year 2000 computer prob international banking and finance.