Volcker Tells of $30-Billion Bank ‘Glitch’

Federal Reserve Board Chairman Paul A. Volcker today blamed “something in the nature of a glitch” for a massive computer failure last month that left the Bank of New York temporarily $30 billion in the red, threatened to disrupt the financing of the federal deficit and prompted the biggest federal bank bail-out in history.

Volcker told a House Banking subcommittee that the nation’s central bank is reviewing its policy on making emergency loans to temporarily overdrawn banks as a result of the little-publicized Nov. 21 incident.

Volcker and officials of the Bank of New York testified that a flaw in a computer program apparently triggered the chain of events leading to the day-long bank crisis, which nearly spread throughout the nation’s banking system.

But the Fed chief said the decision to give the Bank of New York an “unprecedented” $22.6 billion loan to cover most of its electronic bookkeeping losses--the largest loan the Fed has ever made to a member bank--was justified.

He said major market confusion was avoided by the loan, which was repaid in full, plus $5 million interest, the following day.