Fed Approves Loan Facility Tied To Y2K Problems
WASHINGTON -- The Federal Reserve Board approved a special loan facility to ease any liquidity pressures on banks that arise at the end of this year. But the board denied bankers' requests to lower the interest rate to be charged on the loans.</br></br>The board voted unanimously to create a Century Date Change Special Liquidity Facility, which will let banks borrow funds at a rate 1.5 percentage points above the Fed's target for the federal funds rate, which is 5%. The program will be available from Oct. 1, 1999, through April 7, 2000, one month longer than originally proposed.</br></br>Some banks anticipate great demand for cash toward the year's end because of the Year 2000 computer problem, which is expected to render some software unable to differentiate between 2000 and 1900. Recognizing the uncertainty people have about the consequences of the date change on banks' computers, the Fed has promised to have extra cash on hand to avoid potential disruptions.</br></br>"When there are strange distributions or unusual distributions of reserves, banks under pressure that ordinarily wouldn't be under pressure, this will be there to help them out," a Fed official told reporters.</br></br>"By ensuring the ready availability of funds, the facility should enable depositories and their customers to enter into agreements to meet possible credit needs with greater confidence," the Fed said in a memorandum. "The facility also should help to damp any tendency for money markets to tighten owing to inevitable difficulties . . . in gauging the overall supply and demand for reserves each day."