Feditorial: Century Date Conversion: No Time to Waste

Joan P. Cronin

If the banking industry plans to provide financial services competitively and profitably in the near term, its conversion to Year 2000 compliant technology must be almost transparent to its customers. According to a recent FFIEC survey, some institutions have yet to complete their Year 2000 plans. Because an awareness of Year 2000 issues appears mixed among senior management and directors of smaller institutions, I encourage all institutions to complete plans that are fully consistent with key dates in FFIEC supervisory guidance.

By Sept. 30, 1997, all critical applications should be identified, and plans that include priorities for work during 1998 should be in place. By Dec. 31, 1998, programming changes and hardware updates for these applications should be complete, and testing should be well under way.

In addition to making an assessment and completing renovation or replacement plans for their own software and hardware, institutions should check the progress of the plans of their suppliers. For example, those institutions relying on data processing support from third-party service providers or software vendors must evaluate and monitor the progress of these companies in renovating their software. In particular, these providers should have an all-inclusive testing plan that covers their own internal testing and describes the methodology and extent of testing at client banks. Testing of interfaces and exchange of data between different vendors' software products should also have high priority. Vendors should provide periodic Year 2000 progress reports to their client institutions.

In addition, institutions should evaluate any borrowers with significant credit exposure to determine the effectiveness of their Year 2000 planning. Plans of other corporate customers must also be evaluated to ensure that they will be able to exchange and settle payments timely.

Testing is critical to Year 2000 implementation. Both incremental changes to hardware, software and upgrades, as well as connections with the systems of all counter parties, must be tested. Finally, realistic contingency plans should be in place for instances where it appears that full and timely compliance with year 2000 may not be attained.

Our discussions with Year 2000 experts, bankers and field examiners indicate that some financial institutions have not yet considered all the implications of the Year 2000 problem. Now is the time for managers to begin preparing their institutions for this conversion.

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