Minnesota Attorney General Hubert Humphrey III filed six lawsuits in 1995 against six companies accusing them of engaging in illegal business practices or running outright pyramid schemes over the Internet, although none of the six companies was based in Minnesota, and no Minnesota citizen ever came forward to complain about the companies. The fact that a Minnesota resident could have accessed the scams run by the companies, claimed Attorney General Humphrey, was sufficient to confer jurisdiction of his lawsuits in the Minnesota courts. Lest this argument sound wildly and improbably expansive, it should be noted that the “Internet access = jurisdiction” idea has already been accepted by some of the Federal district courts that have decided such cases, although it must also be noted that these courts’ decisions have been inconsistent, have all had slightly different facts, and have taken great pains to distinguish themselves from one another. New case law on the issue of jurisdiction conferred by Internet access is undoubtedly being made as we speak. At a minimum, then, banks offering services through the Internet should have signed contracts with electronic and Internet banking customers that specify to the courts where claims or disputes may be brought. Web-sites designed merely to advertise a bank’s financial services should be designed to be as controversy-free as possible, although that may be difficult without making the sites content-free as well. Banks should err on the side of caution until the jurisdictional issues have had more time to sort themselves out.
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.