U.S. banks 'ready for Y2K'

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But Federal Reserve governor says the bug may cause problems abroad

March 10, 1999: 11:38 a.m. ET

NEW YORK (Reuters) - U.S. banks should be ready and able to deal with any computer glitches that arise when the year 2000 arrives, though there could be some disruptions abroad, Federal Reserve Governor Edward Kelley said Wednesday. In prepared remarks for delivery to the Media Studies Center in New York, Kelley said U.S. regulators were pressing banks to make sure their computers operate normally after Dec. 31, 1999. A text of his remarks was issued in advance of delivery. "We are confident that the overwhelming majority of banks are carefully and thoroughly preparing themselves and that even if problems arise, they can and will be readily handled, and that the financial system will not seize up or crash," Kelley said. The so-called Y2K problem arises because many older computers were programmed to recognize only the final two digits of a year. That has fanned concern that computer-controlled systems may cease to work or will perform incorrectly when 2000 arrives because they might not recognize "00" as a new year. Kelley said federal regulators, including the Fed, were completing their second inspection of all 10,600 U.S. banks and thrifts to make sure that customer records will be secure and cash will be on hand at year-end. "The overwhelming majority of institutions are reported by our examiners to be doing a thorough preparatory job, and they will be fully ready well in advance of Dec 31, 1999," he said. But he said some other countries have been slow to address the issue and that may lead to problems. "We do not believe this will seriously affect worldwide financial activity, but it could result in some disruptions abroad," he said. Kelley urged the media to carefully weigh information on the Y2K issue before reporting it to make sure the public gets accurate reports about the preparations that banks and others were making.

-- Vinnie (mail@bomb.com), March 11, 1999


Vinnie; Thanks for informative post about status of banks. Regards,

-- Watchful (seethesea@msn.com), March 11, 1999.

We (the U.S.)don't have any compliant banks, but...the only banks that are going to have problems are the banks that are overseas. Hmmm. That seems to be the prevailing spin these days. I have noticed this in numerous articles. They begin by talking about a business's problems. Then they say they will be fixed in time. Then as a finale they divert the reader's attention to the problems of other countries.

Got discernment?

-- Sharon (sking@drought-ridden.com), March 11, 1999.

I love that first line "U.S. banks should be......" Well, I SHOULD BE rich instead of good-looking but I'm not (well OK I'm not good- looking either but you get the point) I've seen this line of crap over and over. Maybe they will be compliant in time but until they are, why don't they just keep this PR garbage to themselves. Sorry, no real point here. Just blowin' off steam!!!

-- (rick@ina.com), March 11, 1999.

This is just one more manifestation of the "it can't happen here" philosophy. The reality is that it can happen here, and will happen here! And even, even if, the U.S. banks did turn out to be ready for Y2K, that is going to be small consolation due to our interconnected global banking system.

-- Jack (jsprat@eld.net), March 11, 1999.

And there's also the question of loans made by U.S. banks. Many of these loans are to businesses here or abroad that won't be compliant in 2000.

-- Kevin (mixesmusic@worldnet.att.net), March 11, 1999.


Regulators Warn U.S. Banks To Prepare For Losses

(Last updated 5:35 PM ET March 10)

By Glenn Somerville

WASHINGTON (Reuters) - Wobbly global markets are likely to produce increased losses for U.S. lending institutions, federal regulators cautioned Wednesday in a joint letter advising banks to make sure their allowances for bad loans were high enough.

The letter was sent to U.S. banks and thrifts by the Federal Reserve, the Securities and Exchange Commission, the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

"We recognize that today instability in certain global markets ... is likely to increase loss inherent in affected institutions' portfolios and consequently require higher allowances for credit losses than were appropriate in more stable times," the letter said.

The letter did not name specific markets that regulators were worried about, but U.S. banks are lenders in regions like Central America where Brazil is in crisis and Asia, where several economies also continue to struggle to resume growth.

Last November, the same regulators sent another joint letter to lending institutions telling them to be sure that they properly recorded and reported their allowance for loan and lease losses.

The latest letter says regulators want to emphasize to lenders the necessity for keeping "prudent, conservative but not excessive loan loss allowances" and to take into account the rising risks from market uncertainty around the world.

It said regulators were setting up a joint working group to study how banks were determining their allowance for credit losses and to offer guidance to the lenders on what the regulators considered to be appropriate.

The letter, made public by the Fed, said that despite last November's advisory, there seemed to be "continued uncertainty among financial institutions as to the expectations of the banking and securities regulators on the appropriate amount, disclosure and documentation of the allowance for credit losses."

It said that, within a year, regulators intend to set guidelines for banks and thrifts so that they can reasonably assess the chances of losses among their lending portfolios and document how thoroughly they are preparing for them. ---------------------------------------------------------------------

-- Kevin (mixesmusic@worldnet.att.net), March 11, 1999.

Being ready is not the same as being compliant. Davy Crockett and Col. Travis were ready for the Mexican army at the Alamo but they still got killed.

-- cody varian (cody@y2ksurvive.com), March 11, 1999.

Excellent post,

Yeah you can read what you want into the words, but my spin on it is its pretty accurate. Unfortunately some of the media and spokesmen arent considering each of there words as carefully as we here are, maybe they should.

Losses due to oversees problems are inevitable. Weve seen it 4 times this year, Russia, Malaysia, Hong Kong and Brazil have all experienced economic turmoil. As Y2k strikes unprepared countries some US banks will fail due to overexposure. But keep in mind its an industry of sharks the failures will quickly be swallowed up by surviving banks looking to expand thier markets. Think about it, how many times has your bank changed its name in the last 5 years?

-- nyc (nycnyc@hotmail.com), March 12, 1999.


Findings Contradict Regulators' Tallies

In a new survey of Y2K preparedness, 247 of 1,128 banks and S&Ls reported completion dates that were deemed to be inadequate, according to Weiss Ratings Inc., a leading bank rating agency.

Of those, 195, or 17%, were assigned a Y2K grade of "Below Average," while 52, or 5%, were rated "Low."

The Weiss Y2K survey, mailed on Dec. 30, 1998 to 10,715 federally insured depository institutions, asked 13 questions about each company's timeline for completing various milestones in the Y2K remediation and testing process.

In response to one of the most important questions -- Did the institution fix and test all internal mission-critical systems before year-end 1998? -- more than one third answered "no." This was despite a regulatory mandate that these systems be "substantially" completed by Dec. 31, 1998.

"The varying interpretations of the word 'substantially' by the banks and S&Ls are creating industry-wide ambiguity," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. "Many banks report they've complied with this regulatory benchmark, even though their expected completion dates remain months into the future. We believe they may need that time to complete the additional tasks of fixing and testing service providers' systems and 'non-mission-critical' computer programs."

The Weiss results contradict recently announced tallies by the FDIC -- that only 2.9% of insured institutions have failed to achieve a "satisfactory" rating in their Y2K compliance evaluations.

"This discrepancy is a mystery to me," added Dr. Weiss. "The regulators are either basing their statistics on old data or are interpreting the word 'substantially' very liberally. The end result is that consumers are not being given an accurate picture."

By evaluating the banks' actual or expected completion dates for critical tasks, the Weiss Y2K survey separates those that have truly made good progress from those that appear to be lagging behind.

On the other end of the spectrum, 177 institutions, or 15.6%, reported data that Weiss interpreted as an indication of "High" progress in their Y2K preparations. The balance, representing 62.5% of respondents, indicated a level of progress that was deemed "Average," reflecting adequate preparations at this time.

Weiss advises consumers and analysts to judge the Y2K ratings in the context of a company's overall financial strength. A bank with abundant capital resources is better equipped to remedy its Y2K problems today and cope with any consequences after the year 2000. In contrast, a bank with apparent deficiencies in both its Y2K progress and its financial stability may be at serious risk.

Institutions receiving a "Low" Y2K progress rating and a "Fair" or "Weak" financial safety rating, include: -- Stillwater NB&TC (Stillwater, Okla.) -- Centier Bank (Whiting, Ind.) -- MidSouth Bank (Monette, Ariz.)

Among institutions receiving both a "High" Y2K grade and an "Excellent" financial safety rating are: -- Piedmont FS&LA (Winston-Salem, N.C.) -- Centreville Savings Bank (West Warwick, R.I.) -- American NB&TC (Danville, Va.)

None of the very large banks surveyed by Weiss (with $1 billion or more in assets) received "Low" or "High" Y2K grades. However, banks such as Wachovia Bank (Winston-Salem, N.C.), Charter One Bank (Cleveland), and People's Bank (Bridgeport, Conn.) were graded "Below Average" for their Y2K progress, while Bank of America (San Francisco), Washington Mutual (Stockton, Calif.) and Fleet NB (Providence, R.I.) received a grade of "Average."

Weiss Calls For Industry Disclosure

Both consumers and regulators have expressed growing concerns that ill-prepared financial institutions may be unable to properly process account transaction and money transfers after Jan. 1, 2000.

In order to help quell these concerns and protect consumers from doing business with ill-prepared companies, Weiss is urging state and federal regulators to require disclosure regarding the Y2K readiness of the institutions they supervise.

In the absence of this disclosure, the Weiss Y2K Ratings are currently the only evaluations available to consumers. For $15 per company, consumers may acquire both a Weiss Y2K Rating and a Weiss Safety Rating on a financial institution by calling 800/289-9222.

If a Y2K Rating is not available, consumers will receive a Weiss Safety Rating, plus specific information on how to contact the Year 2000 project manager or financial officer at their bank.

Weiss publishes financial safety and Y2K readiness ratings on insurers, banks and S&Ls. The accuracy of its ratings has been favorably reviewed by the U.S. General Accounting Office (GAO) as well as national consumer organizations. For more information, visit the Weiss Ratings web site at www.weissratings.com.

-- Sysman (y2kboard@yahoo.com), March 12, 1999.

Also see the following thread. <:)=

Media told to kool it on Y2K reporting

-- Sysman (y2kboard@yahoo.com), March 12, 1999.

I have been asking several banks for Y2K compliancy statement for the last several months and still have not received a thing? Will banks be confident enough to provide documentation stating compliancy? I am starting to wonder?? Also does anyone know whether the FDIC Ins. will support a bank that fails do to Y2K issues? Thanks.

-- RM (Roccof4@aol.com), March 14, 1999.

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