Two such advantages stand out: -  The collective efforts of our banking sector are governed by a natural leadership structure which facilitates and accelerates development processes,  -  and, secondly, the two big players act in some measure as know-how brokers, swiftly incorporating the Year 2000 experiences gained abroad into the process of solving the problem in this country. More generally speaking, our long tradition of practical cooperation between competitors and of close ties between regulators and banks is a distinct plus in the preparatory work. Jointly managed institutions like the Swiss Exchange, our central securities depository, or the Swiss Interbank Clearing System are well-known examples of this spirit of cooperation. 1  BIS Review 46/1999  I am confident that the large-scale interbank tests scheduled to begin in May will provide us with a positive picture of the state of preparations. Assuring liquidity From the viewpoint of a central banker, assuring adequate liquidity must be the prime concern. Based on the nature of their business, banks are inherently vulnerable. Withdrawals and redistribution of deposits can jeopardise the banks’ capacity to pay. Such effects, should they materialise at all, may take place as a millennium shadow before or during entering the next millennium. It is primarily the duty of individual banks to brace themselves for such events. They must undertake careful liquidity planning, comprising both a normal scenario as well as different stress scenarios.
They must have a clear idea where, in what form, and to what extent they can cover their liquidity needs and make the necessary limits and collateral available. In this process, it is crucial that banks interfacing with large customers - enter into agreements with one another, thus creating a high degree of transparency. The goal is to limit the range of unexpected behavioural changes by creating transparency and reaching an understanding. Looking at the issue from this vantage point also makes it clear that a strategy of avoiding transactions is completely contra-productive. Even though it makes sense to avoid settlement dates of forward contracts falling immediately before and after the millennium transition, it is vital that transactions can be carried out and that markets remain liquid. It is at least conceivable that smaller banks or those with a somewhat lower rating will be confronted with an outflow of deposits while the top names in the industry receive an influx of deposits. This generates stress which can only be reduced by efficiently re-channelling funds between banks. It is obvious that the availability of sufficient collateral is crucial. The availability of collateral - just in case - is therefore the central focus of liquidity planning. In the case of Switzerland, the potential re-channelling problem has both an aspect ameliorating the problem and one making it more difficult. What may actually ease the situation is the fact that the cantonal banks, with roughly one-third of the market share, operate with a state guarantee.