District Circular Letters

December 23, 1998

BANKING SUPERVISION AND REGULATION:
YEAR 2000 CONTINGENCY PLANNING

To State Member Banks, Bank
Holding Companies, Edge Act Corporations,
U.S. Branches and Agencies of Foreign Banks,
and Others Concerned
in the Twelfth Federal Reserve District

FFIEC Guidance Answering Frequently Asked Questions Regarding CDC Contingency Planning

The Federal Financial Institutions Examination Council (FFIEC) has issued the enclosed guidance, "Questions and Answers Concerning Year 2000 Contingency Planning." This publication clarifies the regulating agencies' expectations for the completion of remediation and business resumption contingency plans and supplements previous FFIEC Year 2000 guidance.

It is important to note that the information contained in the document is not intended to introduce additional expectations, but rather to provide further insight into the previously-issued FFIEC guidelines (SR Letter 98-11 [SUP]: see our letter dated June 2, 1998).

As the FFIEC guidance emphasizes, "Financial institutions are expected to substantially complete the four phases of the Year 2000 business resumption contingency planning process as soon as possible, but not later than June 30, 1999." Each institution's Year 2000 business resumption contingency plans should be updated as necessary, and an institution's senior management and board of directors should review and approve Year 2000 contingency plans. The guidance recognizes that this planning process is dynamic, and that revisions to the plans will be ongoing through some point in the year 2000.

The FFIEC Q&A notes that "establishing meaningful and practical business resumption contingency plans is an essential component of the risk management process for addressing Year 2000 problems." Among other issues, the guidance encourages institutions to consider doing the following when developing Year 2000 business resumption contingency plans:

• seek ways to minimize unwarranted public alarm by educating customers about the Year 2000 problem and explaining the steps financial institutions are taking in response to the situation;
• consider the cash demands of your institution's customers;
• anticipate funding needs in late 1999 and early 2000;
• train your institution's employees to ensure that they are prepared to implement Year 2000 business resumption contingency plans; and
• validate your institution's Year 2000 business resumption contingency plan, using an independent and qualified source.
  

Additional Information

For additional information regarding the FFIEC Q&A guidance, or about the Federal Reserve's Year 2000 bank supervision program, please contact Mr. Robert Johnson, Assistant Vice President, Banking Supervision and Regulation, at (213) 683-2738.

If you have questions about the Federal Reserve System's Century Date Change Project, please contact your local Business Development office, as listed below:

FEDERAL RESERVE BANK OF SAN FRANCISCO

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