Glitch of the Century
Ketcha, Nicholas, Independent Banker
INTERVIEW WITH AN FDIC REGULATOR ON YEAR 2000 COMPLIANCE
The Federal Deposit Insurance Corp. and the other federal banking agencies have a risk-focused regulatory emphasis in overseeing financial institutions. Consequently, concern and awareness grow over the risks associated with computer programming and the date change that comes with the next century-the year 2000 issue.
The software that controls many of the nation's computer systems must be reprogrammed to continue datesensitive functions after the new century arrives and the date changes to "00." Left unchanged, software systems pose serious operational, legal and credit risks for the nation's financial services industry and the businesses they deal with. Many software systems weren't programmed to recognize the "00" in a six digit date code-for example, 01/01/00 would be interpreted as either Jan. 1, 1900 or Jan. 1, 2000. Our industry's reputation for safety and soundness is also at stake.
To shed more light on the complex regulatory challenges presented by the year 2000 issue, IBAA posed written questions to Nicholas J. Ketcha Jr., director of the FDIC's division of supervision and the agency's point man on year 2000 compliance.
IBAA: Why are the banking agencies so concerned about whether financial institutions are year 2000 compliant?
Ketcha: The financial stability of the country depends on a safe and sound banking system. The banking industry is heavily dependent on computers for their existence. The ability to operate on a day-to-day basis depends on having access to computers that can quickly and accurately perform accounting and record keeping functions. It is crucial that institutions maintain the confidence of their customers that they operate in a safe and sound manner.
The year 2000 problem primarily arises from the inability of a computer system to properly handle dates. Because financial institutions rely heavily on dates in carrying out their operations, it is imperative that dates be reflected properly on the records.
IBAA: What specific problems will financial institutions face if they are not in compliance in the year 2000?
Ketcha: Generally, financial institutions will face problems such as programmed calculations that terminate processing or that perform incorrectly or attempt but never complete a calculation. The inability to correctly maintain records could create a devastating situation within a matter of days. These inaccurate or incomplete records could subject the effected banks to significant operational, legal, reputational and credit risk, which could result in losses.
IBAA: We understand that bank examiners will begin their assessment of each bank's year 2000 conversion efforts by mid-1997. What will the examiners be looking for?
Ketcha: FDIC examiners have been reviewing year 2000 efforts with increased intensity since March of 1997. At this point in time, we expect that banks will have developed a plan, completed the awareness phase and be well into the assessment phase. The FIDC is committed to completing an initial assessment of the financial institutions we supervise by year-end 1997.
IBAA: What is the year 2000 Examiner Questionnaire? What is it designed to do?
Ketcha: The purpose of the Examiner Questionnaire is to provide a uniform review of a sample of financial institutions' and servicers' year 2000 plans to resolve this issue. The questionnaire is designed to provide an overview of where a significant portion of the industry stood in preparing for the year 2000. The questionnaire was included in the FFIEC's May 5 package for use by banks as a self-assessment tool.
IBAA: The Federal Financial Institutions Examination Council has issued guidelines outlining a management process to help banks evaluate their core computer functions. Can you explain the recommended management plan?
Ketcha: The FFIEC guidelines coilrain a five-step plan for achieving compliance. …