Local banking model a Y2K blessing: US Fed Reserve

The Australian financial market model of large-scale branch networks is a blessing for banks looking to achieve Y2K compliance, according to the US Federal Reserve Bank.

Oliver Ireland, the Federal Reserve System's legal advisor on central banking functions, said Australian banks are well-placed to overcome the millennium bug, thanks mainly to the mammoth scale on which the industry operates.

Unlike the US - where the banking sector is made up of a blend of large branch networks as well as stand-alone banks - Ireland said the Australian model of centralised banking operations may prove to lighten the compliance load for many organisations in the lead-up to the turn of the century.

"In the US, we have a mix of very large branch bank networks and a large number of stand-alone banks and there are problems with both of those structures. First of all, if you have an integrated banking network that is composed of a large number of branches with centralised - or if not centralised at least common - automation environment, you only have to fix it once. That's the good news. The bad news is if you haven't fixed it, you've got a bigger problem," he said.

While the job may not be as big, Ireland said smaller banks are still at risk due to an above-average reliance on third-party compliance. Even though confirming internal readiness is important, Ireland said smaller banks need to ensure the entire supply chain is covered if true Y2K conformity is to be achieved.

"With stand-alone institutions you have to make sure that a larger number of institutions are remediating their own systems. That's the bad news. The good news is that if you have a problem, it's isolated to a somewhat smaller level. So there are advantages and disadvantages to both structures. We have them both [in the US] and are trying to deal with them both."

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