Thursday June 3 5:37 AM ET 

Fed's Parry Says Y2K Unlikely To Disrupt Banking

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Year 2000 Problem



SAN FRANCISCO (Reuters) - Federal Reserve Bank of San Francisco President Robert Parry said Wednesday he does not expect the year 2000 computer bug to cause any unusual problems with the U.S. financial system.

Parry, while acknowledging the possibility that the so-called ``Y2K'' bug may have a marginal effect on U.S. economic growth, said that he was fully confident that major U.S banking systems and financial institutions would come through unscathed.

``I'd say we're a lot closer to 'mission accomplished' than 'mission:impossible','' Parry said in a speech to the Commonwealth Club in San Francisco.

The San Francisco Fed chief said all systems critical to the Fed's operations will be ready to handle the rollover from 1999 to 2000 without major glitches. But he did say there are more uncertainties about the preparedness of international financial systems, particularly in developing countries.

``My expectation is that most, if not all, of the (financial) institutions in the developed world will be dealing with these issues,'' Parry said. ``I am less confident as you go down the ladder.''

The U.S. Securities and Exchange Commission has indicated the securities exchanges and clearinghouses should be ready for the rollover well before the new year, Parry said.

The Fed, which has accumulated some $50 billion in extra funds, will be ready to meet any increased demands for cash by a nervous public and will also be prepared to lend to depository institutions ``in appropriate circumstances'', he added.

Parry did say the Y2K bug might have a minor effect on U.S. economic growth for the rest of 1999 and the start of 2000 if people boost investments ahead of the start of year to escape possible Y2K problems in older computers not programmed to recognize dates falling after 2000.

``It is quite possible that you're actually going to see some stimulus to the economy, particularly in the fourth quarter,'' he said, adding that ``at the beginning of the year 2000 you might see an opposite effect, a slowing.''

Parry said the change in either direction would be no more than a couple of tenths of one percent of GDP growth, and would probably pass almost unnoticed.

``My analysis of the situation is that the effects...are going to be pretty modest, particularly relative to the kinds of growth rates we've been used to,'' Parry said.

Parry said he felt the biggest threat involved in Y2K was the possibility of ``irrational behavior'' among members of the public alarmed by Y2K horror stories.

``I don't think it's a good idea to take a lot of cash out of your bank and put it under your mattress,'' Parry said, noting deposits were insured in the banks. ``...Public confidence in our financial system is going to be critical during the century date change.''

He recommended individuals prepare for any potential computer problems by making back-up copies of financial records, checking home computers and asking banks and brokers if they are prepared and being on alert for Y2K scams.