In late 1999, the Federal Reserve established what was ostensibly an emergency credit facility. On October 1 that year, this offshoot of the Discount Window went live. Its main feature was that it was to be a primary program, meaning that banks didn’t have to prove they could access funds elsewhere first. They could go there freely without fear of regulatory recourse.

The reason for this care was Y2K. The Fed was taking all precautions even though by October 1999 it had become clear any related computer glitches would be minor. For those not old enough to remember, Y2K is synonymous with computer programming. In the early days of computers where processer power was at an enormous premium, dates embedded within important software were coded in two rather than four digits; 79 instead of 1979.

As the new millennium approached, people began to wonder how that might affect these programs that were still in use in vital areas. Stories began to spread, as these things often do, attaining by the end apocalyptic visions of nuclear missiles being launched all on their own (how that might be related to the number of digits in a date was never, of course, actually explained). In the financial arena, the viral story of ATM’s becoming locked up by software confusion seemed to many quite plausible.

The Fed, then, was acting in anticipation of what could be a minor bank run of the 1930’s variety. Spooked depositors might begin to withdraw cash from banks before the change to 2000, leaving those banks vulnerable to perhaps far more than normal liquidity constraints.

Whether or not the US central bank actually believed that the Millennium Bug, as it was also called, was likely or even possible wasn’t the point. The Discount Window extension was more a commentary about people and how economists view them – as emotional children falling prey to ridiculous stories floating about in the breeze. The Fed was preparing for popular stupidity, not the systemic crash of the nation’s monetary infrastructure.