If the issuance of private electronic money grows to a significant level in the real economy, and if much of that growth is provided by nonbank issuers of electronic money, there could be a similar request for nonbank issuers to provide information about the volume of their issuance and their outstanding electronic money liabilities, to the extent these liabilities are not recorded on the books of a bank every time they are circulated in the general economy. A Bank Supervisor’s View From this perspective, combining banking and the Internet offers both great opportunity and great potential risk. First, the good news -- it is primarily cost-related. It has been reported by several banking studies that the cost of a typical transaction at a bank branch is now over $ the cost of an ATM transaction is approximately $ The cost of an Internet transaction, however, has been estimated at about a penny. I do not vouch for this statistic, but the difference is substantial. Such figures make a compelling argument for banks to get on the Internet sooner rather than later, and to move as many of their customers on to electronic or Internet banking as soon as they possibly can. Indeed, some banks offer low-fee accounts where the customer is not expected to enter an office physically -- mail, phone, and ATM are sufficient. As stated by Board of Governors Chairman Alan Greenspan: “it is useful...to begin by reminding ourselves just why there is bank supervision and regulation.
At bottom, of course, is the historical experience of the effects on the real economy of financial market 3  Remarks of Edward W. Kelley, Jr., Member of the Board of Governors of the Federal Reserve System, at the Cyberpayments Conference ’96 (June 18, 1996). BIS Review 17/1997  -3-  disruptions and bank failures, especially when the disruptions and failures spread beyond the initial impetus.”4 A bank supervisor should have concerns other than cost, and these comprise the bad news -- the “risk” aspect of banking on the Internet. In the simplest terms, while we strive to ensure that banks remain efficient and cost-effective, we also have to ensure that banks know what they are getting into, and that they are capable of handling the risks that accompany banking on the Internet. The tension between the two is very constant and real, particularly because the technology today seems to be moving so much faster than bankers or bank supervisors can fully absorb. At the Federal Reserve Bank of New York, we are being proactive in this area. We currently conduct on-site, information systems examinations of State member banks in our district -- in addition to commercial, trust, trading, and compliance examinations -- in which we try to review and constructively criticize the examined bank’s entire MIS infrastructure. There is no separate, independent electronic or Internet bank exam as such.