WASHINGTON -- Some of the billions of extra dollars distributed to banks to alleviate Y2K panic were shipped back in armored trucks Monday to the Federal Reserve.
Economists said the temporary displacement should have no significant impact on the economy.Sen. Bob Bennett, R-Utah, chairman of the Senate Special Committee on the Year 2000 Computer Problem, said on New Year's Eve the Fed made it too difficult for banks to get their hands on the extra cash put into circulation, so about $70 billion earmarked for Y2K circulation never left Federal Reserve branches.
That turned out not to be a problem because consumer demand for the cash was slight, creating a disincentive for banks to pester the Fed to circulate the extra currency.
Yields on Treasury bonds, meanwhile, hit two-year highs as some investors sold bonds they had been holding as insurance against year 2000 disruptions. The selling wave pushed down bond prices, which move inversely to yields.
"It appears to be money going back home," said David Wyss, chief financial economist at Standard and Poor's DRI in Lexington, Mass.
In addition, government bond prices were driven lower by what Allen Sinai, chief global economist at Primark Decision Economics, called "the same old concern: inflation and the Fed" and whether the central bank would raise interest rates early next month.
The Federal Reserve distributed some $80 billion to banks, thrifts and credit unions during the fourth quarter of 1999, compared with $23 billion over the same period a year ago. But some of the extra currency could have been requested for reasons unrelated to Y2K, such as bank customers' holiday shopping needs, Fed officials say.
Now that 2000 has arrived without a run on banks, the banks and other financial institutions started packing up the surplus currency and sending it back to regional Federal Reserve banks, as previously planned. The process is expected to take several days.
"The funds were just there temporarily," Wyss said. "(The Fed is) going to take them right back."
Since most of the Y2K money stayed in bank vaults and didn't get into the public's hands, there shouldn't be any inflationary effect on the economy, he said.
Still, the Fed needed to provide the extra cushion of cash to reassure the public, banks and the financial markets, Sinai said from New York.
Overall, the nation's banking system appeared to be operating largely free of Y2K glitches on the first business day of 2000 -- when weekend transactions were first accounted for in massive computer databases.
ATMs -- stuffed with extra cash -- continued to work, and bank balances and loan information appeared accurate throughout the system, government and banking industry officials reported.
"We've been doing the 'health checks' of financial institutions," said Fed spokeswoman Rose Pianalto, referring to the telephone calls to the nation's banks made by Fed employees. "There have been no major problems reported."
In addition, Pianalto said, the central bank's check-clearing operations, which process 68 million checks on a typical day, continued to operate normally.
Banking industry officials say they're optimistic people won't experience problems withdrawing cash from automated teller machines.
"We're thrilled with how everything has gone," said John Hall, a spokesman for the American Bankers Association.
Deseret News associate business editor Steve Fidel contributed to this report.