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1998 Annual Report
Year 2000 Challenges
The Year 2000 date change presents challenges for the financial
services industry and its regulators. If this issue is not addressed, computers may be
unable to record and process information accurately.
The Year 2000 challenge was the FDICs highest safetyandsoundness priority in 1998. The Corporation took aggressive action during the year to address the Year 2000 date change, including issuing guidance to financial institutions, performing outreach activities, conducting comprehensive on-site assessments at banks, training staff and preparing contingency plans. The FDIC also addressed the effects of the Year 2000 date change on its own automated systems.
The FDIC, in partnership with the other agencies of the Federal Financial Institutions Examination Council (FFIEC), issued substantial guidance to the industry in 1998 on how to address certain Year 2000-related issues. The guidance states that banks should ensure the involvement of the board of directors and management in Year 2000 efforts, adopt written project plans, renovate mission-critical systems, complete tests of the renovated systems by specific deadlines, plan for contingencies, appropriately manage Year 2000 risk posed by customers and develop Year 2000 customer awareness programs. Milestone dates by which financial institutions should accomplish certain Year 2000-related responsibilities are prescribed in the guidance.
To maintain open communication with the banking industry about Year 2000 issues, the FDIC and the FFIEC conducted an extensive nationwide banker outreach program in conjunction with industry trade organizations in 1998. The FDIC took part in more than 130 one-day seminars addressing regulatory expectations in the areas of testing and contingency planning. More than 11,000 bankers attended these sessions. Other Year 2000 outreach activities in 1998 included co-sponsoring a summit meeting on behalf of the Presidents Council on Year 2000 Conversion Financial Institution Sector Group; and monthly publication of an FDIC Year 2000 newsletter, which discusses important current issues and reminds bankers of regulatory expectations.
The FFIEC guidance requiring all FDIC-insured financial institutions to establish Year 2000 customer awareness programs underscores the FFIECs belief that institutions have a responsibility to inform bank customers about the Year 2000 issue and the steps they are taking to minimize the potential for glitches. To help insured financial institutions comply with the FFIECs guidance, the FDIC developed several publications in 1998 that bankers can use to educate their customers about the Year 2000 issue.
By May 31, 1998, the FDICs bank examiners, with assistance from state bank regulators, completed the first round of on-site Year 2000 assessments for FDIC-supervised institutions. FDIC examiners also completed on-site assessments of all data service providers and vendors that the FDIC is responsible for examining. In these on-site assessments, examiners determined whether the board and senior management were actively involved in their institutions Year 2000 projects, whether their Year 2000 programs were comprehensive, and whether they understood regulatory requirements. Examiners also assessed whether institutions properly identified the scope of the Year 2000 issue and the resources that would be required to address technical problems.
The results indicated that the vast majority of financial institutions, as well as their service providers and software vendors, recognize the risk of the Year 2000 date change and are acting to address the issue. At year-end 1998, approximately 97 percent of FDIC-supervised institutions were making satisfactory progress toward achieving Year 2000 readiness. During 1999, examiners will continue to follow up on weaknesses detected in the first round of on-site examinations and, by March 31, will complete a second round that began in the latter half of 1998.
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