District Circular Letters

• District Circular Letters Index

July 24, 1998

CENTURY DATE CHANGE:
YEAR 2000 PHASE II WORKPROGRAM
CUSTOMER BROCHURE

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 Year 2000 Phase II Workprogram

The Federal Financial Institutions Examination Council (FFIEC) Task Force on Supervision has issued the enclosed updated work program for conducting Year 2000 examinations in all federally supervised banks, savings associations and credit unions, as well as service providers and certain software vendors supporting these financial institutions (Year 2000 Phase II Workprogram). The work program is designed for use during a second round of examinations beginning later this summer. The examination procedures are risk focused and will help the examiner to determine if the institution has addressed the Year 2000 problems inherent in many computer software, hardware, and environmental systems.

The procedures are designed to focus primarily on the adequacy of the institution's plans and processes for achieving Year 2000 readiness, with particular emphasis placed on the final phases of the Year 2000 project-testing and implementation-and on the institution's contingency plans. Testing is considered the most critical phase of Year 2000 project management efforts of financial institutions, service providers and software vendors.

The objectives of the new examination procedures are to follow up on results of previous Year 2000 reviews and to determine whether institutions are following guidance issued by the FFIEC. The FFIEC has issued Year 2000 guidance on the following topics: project management; business risk; due diligence concerning service provider and software vendor readiness; impact on customers; testing; customer awareness program; and contingency planning. In addition, the Work Program is intended to assist the examiner in

• determining whether the institution has implemented an effective plan for testing Year 2000 renovated products and implementing Year 2000-ready products into their production environment;
• assessing the adequacy of the institution's Year 2000 contingency plans;
• determining if the institution is handling Year 2000 issues in a safe and sound manner; and
• identifying whether corrective action may be necessary to assure an appropriate level of attention to Year 2000 readiness activities.

FFIEC Issues Customer Brochure on Year 2000

The FFIEC has issued a new customer brochure, The Year 2000 Date Change, which answers eight commonly asked questions concerning the effect of the century date change. The questions cover the effect of the Year 2000 date change on federal deposit insurance coverage, steps financial institutions and the regulatory agencies are taking to minimize the effect of the Year 2000 date change, and steps customers should take to prepare for the Year 2000.

The brochure briefly describes the efforts of financial institutions in adopting and implementing plans to ensure their readiness for the Year 2000, including timetables for completing specific steps well before January 1, 2000. The brochure underscores that the Year 2000 date change will have no effect on deposit insurance coverage.

The brochure follows FFIEC guidance in May regarding customer awareness for the Year 2000. That guidance underscored the need for banks, savings associations, and credit unions to communicate effectively with customers on the Year 2000 by addressing customer concerns, including the safety of money in customer accounts, access to funds, and customer concerns about withdrawing funds prior to the date change. The guidance in May 1998 also encouraged financial institutions to develop pragmatic strategies for responding to customer inquiries about the institution's Year 2000 readiness. Specifically, the customer awareness guidance advised financial institutions to provide written disclosures on the date change, to establish toll-free hot lines for customer inquiries, and to develop Internet sites for providing information on the date change to customers.

For Additional Information

Distribution of the brochure to banks and savings associations will be undertaken by the Federal Deposit Insurance Corporation. The National Credit Union Administration will distribute the credit union version of the brochure to credit unions in several weeks. The brochure is also available on the Internet site of the Federal Financial Institutions Examination Council, at www.ffiec.gov and the Federal Deposit Insurance Corporation, at http://www.fdic.gov/index.html. Single copies are available by faxing a request to (202) 416-2076, sending a request by e-mail to www.publicinfo@fdic.gov, or writing to the FDIC Public Information Center, at 801 17th Street, N.W., Room 100, Washington, D.C. 20434.

For additional information regarding the enclosed FFIEC workprogram or 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.

FEDERAL RESERVE BANK OF SAN FRANCISCO