Federal Reserve Chairman Alan Greenspan warned yesterday that banks will be the safest place for people to stash their cash at the end of the year, despite popular worries that a computer bug could cause problems for the nation's financial system.

"I think you will have a far greater chance of losing your money if you take it out than if you leave it in," Greenspan told the Senate Banking Committee. He implied that the risk of deposits being electronically wiped out by a computer glitch is less than the danger of being robbed of money withdrawn because of such fears.

"The most risky activity that people can take is to take all the currency out of their banks" because that will only spawn a new industry--"millennium thievery," Greenspan said, drawing laughter from lawmakers.

Greenspan also said people's financial worries about potential New Year's computer problems are far greater than the likelihood of the problems occurring. "I see that the concerns that a lot of people have about what is going to happen to their banks . . . [are] far more adverse than [what] I think even remotely is going to be the case," he said.

The worries have arisen because of the year 2000 problem, commonly known as Y2K, which stems from the fact that millions of computers were programmed to recognize only the last two digits of a year, assuming the first two would be 1 and 9. When Jan. 1, 2000, rolls around, unprepared machines will understand the year "00" not as 2000 but as 1900, which may cause them to shut down or stop working properly. Although businesses and government agencies have spent billions of dollars in an effort to prepare their systems, no one can be absolutely sure what will happen in the first few hours and days of the year 2000.

Citing Y2K concerns, the May issue of Consumer Reports warned readers that it would be "prudent . . . to withdraw--and safely store--about two weeks' worth of cash, or to stock up on travelers' checks, a few weeks before Dec. 31." And a Gallup survey in March found that more than half the respondents said they probably or definitely would withdraw extra cash before the end of the year.

Fed and other bank officials say there should be no need for anyone to do that.

"I have a high degree of confidence that all normal banking services will be available," said Fed governor Edward M. Kelley Jr., who has been following Y2K preparations for the central bank.

"Take out no more than you would for any long weekend," advised William N. Dana, president of the Central Bank of Kansas City.

Still, Dana does plan to have extra cash on hand should some of his customers want it--which is just one example of how the nation's banks and financial institutions are preparing for the new year.

A few weeks ago, the Central Bank of Kansas City pulled the plug sequentially on different parts of its operations to be sure it could operate with no power if necessary at the new year. In fact, Dana said his bank will be open for business on Jan. 1, a Saturday, to reassure customers that they need not worry about whether they will be able to get cash, make deposits, check account balances, buy travelers' checks and money orders or make other routine transactions.

Even if the power company has problems--and a Kansas City Power & Light Co. spokeswoman said it won't--Dana said his tellers can check depositors' balances without having access to computer records. About the only thing that wouldn't work would be the pneumatic tubes at the bank's drive-in station.

Such tests and myriad others are examples of the kind of financial-system war games being played by bankers and their regulators in anticipation of the new year. For many months, the Federal Reserve and the nation's financial institutions have been overhauling their computer systems and software to make sure there are few if any problems on New Year's Day.

The Fed, to use Greenspan's word, has made "exhaustive" preparations to ensure that financial institutions will be able to function normally in the New Year. The Fed and the other federal financial regulators, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the National Credit Union Administration, have been looking over the shoulders of all the institutions as they move toward becoming Y2K-ready.

A mainframe computer was set aside by the Fed to allow all the institutions that have transactions directly with any of the 12 regional Federal Reserve banks to test their updated systems. Only a relatively few smaller institutions haven't successfully run such tests, Kelley said.

"I have no meaningful worries at this point," he said. That doesn't mean that every one of the more than 100,000 automated teller machines will work on Jan. 1, he stressed. After all, on a given day, some are always out of service for one reason or another, he said.

"I seriously doubt we will get by the crossover to the millennium without any glitches, but if they occurs they will be isolated and short-lived," Kelley said.

Meanwhile, to make sure they are indeed short-lived, the regulators are putting in place every backstop they can think of. Altogether, the Fed will spend an estimated $125 million on what Kelley called "this enormous and complex project."

For instance, the Fed, which supplies all financial institutions with the currency they use, already has beefed up its inventory of bills and plans to put stashes of cash in additional locations around the country.

The Fed plans to have an additional $50 billion or more available. That way any of the financial institutions, which usually get cash deliveries once a week, can get a new supply within a day, Kelley said.

The planning is so detailed, Kelley said, that potential traffic congestion points have been taken into account to make sure no deliveries will be delayed.

The Fed and the other four agencies are to report soon on how many financial institutions' had completed fixing and testing all their so-called mission-critical systems as of June 30. All but a handful were expected to be found "Y2K compliant."

In addition, between now and the end of the year, most financial institutions, like Central Bank of Kansas City, will be communicating with their customers in a variety of ways seeking to convince them that Y2K, as far as the financial system in concerned, will be a non-event.

Dana said his bank already has sent letters about Y2K to its customers along with monthly statements. More letters are planned, and in early October the bank plans to start running a video in its lobby to provide more details about the problem and all the things that have been done to deal with it.

"Our message is that they have no reason to worry," Dana said.