Assessing Y2K Readiness

What the FDIC and other regulators are doing to make sure banking institutions get ready

Every business faces Year 2000-related risks if its computer systems malfunction or if the companies it does business with have problems with their computers. But certain businesses, including banks and savings institutions, generally face greater-than-average risks because so many of their transactions depend on date-sensitive computer calculations. For banking institutions, that includes posting interest to deposit accounts, crediting loan payments received, handling automated teller machine transactions, and so on. Making sure that the more than 10,000 FDIC-insured financial institutions correct their computer systems by January 1, 2000, is a major priority for the FDIC and other federal and state banking regulators, as well as for the industry.

The FDIC's Year 2000 project managers meet frequently to discuss the banking industry's progress in achieving Y2K-readiness. Photo: Mattox Photography

Big Task, Top Priority

“Checking computer systems to make sure they will be ready for the Year 2000 date change has been a huge undertaking, but it is a job the banking industry knows has to be done and done right,” says Frank Hartigan, the Washington-based Y2K Project Manager for the FDIC’s Division of Supervision (DOS). “Ensuring that these institutions understand what is involved and take the necessary steps is a top priority for the regulators.”

Hartigan and other FDIC officials also note that making computers Y2K-ready isn’t as easy as you may think. That’s because computer programs can be made up of millions of lines of codes that have to be checked for references to past or future calendar dates. Some computers may even have computer chips that simply won’t work in the Year 2000 and will have to be replaced.

FDIC Consumer News wants to help you understand what the FDIC and other regulators are doing to minimize Y2K problems for consumers. Here’s an overview of the steps banking regulators have taken and will continue to take to ensure that financial institutions address the Year 2000 date change:

•    Federal guidance on how to get ready for the Year 2000 date change. Federal banking regulators have jointly issued guidance to all FDIC-insured institutions on meeting minimum standards for Y2K-readiness, including deadlines for testing their computer systems. The regulators also have instructed insured institutions to keep customers informed of the bank’s Y2K efforts and to plan alternate ways of providing services to customers if disruptions do occur. Still other guidance describes steps for determining whether outside vendors that provide software and data processing services to an institution are ready for the Year 2000.

•    Seminars for bankers across the country to reinforce what the regulators expect. At the seminars, officials from federal and state bank regulatory agencies discuss important Y2K issues and highlight deadlines for bankers involved in Y2K readiness. During 1998, the banking agencies participated in 130 seminars attended by more than 10,000 bank and savings institution executives.

•    Visits to every FDIC-insured financial institution to closely monitor progress in dealing with the problem. What’s involved in these visits? Michael Benardo, a Y2K Examination Specialist with the FDIC in Washington, explains that specially trained examiners have already gone into each FDIC-insured institution to see how institutions are doing. Follow-up visits will be conducted through the Year 2000. “Examiners are determining whether the board of directors and senior management are dedicating the appropriate resources to address technical problems, and if the management understands what the regulators expect,” Benardo says. “Examiners also look at whether the bank’s management understands how the Year 2000 date change can affect the institution’s customers and if appropriate steps are being taken to minimize problems that could disrupt service.”

•    On-site assessments of many of the companies used by the banking industry for computer products and services. Virtually every bank and savings institution relies on data service providers and software vendors. The banking regulators are visiting the most significant of these companies—more than 300 firms—to check whether they are correcting Y2K-related problems in their products and services.

A Critical Phase

In late 1998, financial institutions, data service providers and software vendors entered the most critical phase of their Year 2000 project management efforts. By this time, these organizations should have checked their computer programs line by line, identified what needed to be corrected and made the necessary changes. Now, they are putting their fixes to the test. This means that banking institutions are running their computer programs using dates after January 1, 2000, to see whether the changes were done correctly. The test results will provide the clearest indication whether a computer system is ready for the Year 2000 and will allow time for additional corrections, if necessary.

The vast majority of institutions are doing a good job getting ready for the Year 2000. Those found lacking may be subject to actions from federal and state regulators that would require corrective measures. “The regulators will deal aggressively with institutions that should be doing more to address Year 2000 deficiencies,” says Michael Zamorski, DOS Deputy Director and chairman of a committee that guides the FDIC’s Y2K efforts.

Bank regulators are encouraged by what they have seen. But because it still is possible that an FDIC-insured financial institution could have problems in the Year 2000, the FDIC and other federal and state regulators are working to minimize potential disruptions in service to consumers. And, as always, the FDIC will protect consumers with deposit insurance, which will be unaffected by the Year 2000 date change.