The lawyers may get rich, but will you be in business? • Testing is not a problem -- our organization has good testing and acceptance procedures and we test all the time. Previous internal testing standards probably won’t do the job this time. • Obtaining adequate resources will not be an issue -- our organization has a great technical staff and we can always hire additional resources if it becomes necessary. Good luck. As a bank supervisor, the Federal Reserve Bank of New York will do whatever it can to encourage banks to set up and adhere to programs that deal with Year 2000 problems. Our examiners will focus on how well individual banks are doing and will highlight for senior management and directors those instances when progress may be lagging. This oversight will include not only U.S. banks, but also the U.S. branches and agencies of foreign banks. However, the motivation and determination to cope with the Year 2000 problem must come from within banking organizations rather than from supervisory oversight. Getting the Year 2000 issue right is critical for every organization. Failure to get it right will affect the integrity of the payments system and the performance of the domestic, and maybe even the global, economy. The Federal Reserve is working hard to make certain that our systems will be ready and fully tested. And I am pleased by the high level of central bank coordination on this issue, as the recent release of the Basle Supervisors’ technical paper demonstrates.
The increase may be a way of safeguarding the real economy in the long term A common reaction to the decision to increase the interest rate was that the Riksbank pays too much attention to inflation and too little attention to the real economy. I would like to comment on this claim. One reason for increasing the interest rate was that an increase was needed to prevent the high level of inflation from becoming entrenched. This could happen if the price increases for energy and food begin to spread to other areas. This could ultimately lead to a risk of the Riksbank's ability to hold inflation in check being called into question and of inflation expectations remaining at a consistently high level. This is what happened in the 1970s in many parts of the world, although inflation at that time became entrenched at much higher levels than would be the case today. But even though the levels are much lower today, it could still be relatively costly to get inflation back to the target. It cannot be ruled out that this could require quite a long period with high interest rates and restricted demand. There is thus a risk that conducting too expansionary a policy today would sooner or later give rise to costs in the real economy that, furthermore, could be quite considerable. I do not feel, therefore, that it is correct to say that the increase in the interest rate is an indication that the Riksbank does not care about the real economy.