Re: Y2K-Plan of action..
Fri, 12 Feb 1999 11:59:27 -0800

Brent Allsop, <>, writes:
> Could this really cause such a collapse? As I indicated
> before many of my more fundamentalistic family and friends are getting
> more cache than this in their house right now.

If you are going to cache some cash, it's much better for the system as a whole to do it now, rather than waiting until next Christmas. You do forego more interest, but 4% of even three months' salary is only 1% of your yearly income.

If cash withdrawals start increasing early in the year, there is more time for the banking system to react. Banks can reduce their loan portfolios, the Fed could start printing larger bills if necessary, and/or special acccounting provisions can allow banks to give out more cash than they normally could.

If the big crunch hits all at once, there is less time to react, and the banks could run out of cash. In that case they would have to start limiting cash withdrawals. I think there is some precedent for this during the S&L failures in the 1980s. The S&Ls were able to continue operating in some form but depositors could only get their money out a little bit at a time.

Getting your money out early both benefits the system and also increases the chance that you won't find yourself limited in what you can get.

The main problem is safely storing the money. There is some concern that if this practice becomes widespread, home invasion robberies may become more common. (Of course, if you do get robbed in this way, maybe you would rather that the robbers happily find thousands of dollars in cash than angrily discover that you don't have anything.)

One possibility is to put some part of the money in a safe deposit box at the bank, but if the bank completely shuts down you may not be able to get to that for a while. However if the "soft landing" with limited withdrawals scenario occurs, you should be able to get to it.

The ironic thing is that banks appear to be in relatively good shape as far as Y2K software. They have been working aggressively on the problem for the last year or so, the Fed is cracking down on banks and has said that problem banks will be merged out of existence. The chance that a bank will actually lose your money due to its broken software looks pretty remote. (Of course power failures would temporarily cripple banks along with most other businesses.)

Banks plan a big PR campaign later this year about how well prepared they are. But it may not matter if people want to withdraw cash not because they are afraid of bank Y2K failures, but because they are afraid of Y2K-fear-driven bank runs. We may see a return to WWII civic propaganda, casting aspersions on people who fearfully withdraw money, making them look like selfish hoarders. By protecting themselves they are injuring the banking system and hurting their neighbors. I don't know if such a message would sell today, but they might try it.