District Circular Letters
February 25, 1999
BANKING SUPERVISION AND REGULATION:
FEDERAL RESERVE YEAR 2000 SUPERVISION PROGRAM
FFIEC GUIDANCE ON YEAR 2000 CUSTOMER COMMUNICATIONS
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
Phase III of the Y2K Supervision Program and Guidance Concerning
Follow-up Enforcement Actions and Applications
As time grows shorter for financial institutions to achieve Year 2000 readiness,
the Federal Reserve is intensifying its supervision program for the financial
institutions it supervises. Phase II of the Federal Reserve's Year 2000
supervision program, which focuses on testing, remediation, and contingency
planning, is well under way, and will end on March 31, 1999.
The third and final phase of the Year 2000 supervision program will then
begin on April 1, 1999, and run through the end of the
year. The enclosed supervisory letter (SR
99-2 [SUP]) describes Phase III, as well as the Federal Reserve's
enhanced internal Year 2000 monitoring program and follow-up enforcement
action guidelines that are being implemented immediately. In addition, SR
99-2 reaffirms the Federal Reserve's applications policy regarding restrictions
on expansionary activities by financial institutions whose Year 2000 compliance
efforts are rated less than satisfactory.
Phase III Supervision Program
The Federal Reserve's Phase III Year 2000 supervision program calls
for our examiners to implement risk-focused Year 2000 reviews of financial
institutions during the second and third quarters 1999, focusing on efforts
to comply with the Federal Financial Institutions Examination Council
(FFIEC) milestone dates and with guidelines pertaining to testing, implementation,
and contingency planning. In addition, financial institutions that present
the greatest Year 2000 risk to key financial and payment systems in the
United States will be subject to at least monthly contacts, and the top
fifty bank holding companies will be subject to at least quarterly contacts,
to ensure that implementation is completed and appropriate contingency
plans are up-to-date. Service providers and software vendors will continue
to be subject to at least quarterly contacts to review the status of third-party
testing and contingency planning. On-site reviews will be performed at
service providers and software vendors previously rated less than satisfactory
or that appear to have experienced a significant change in condition.
Results of these reviews will continue to be distributed to serviced financial
institutions.
Follow-Up Enforcement Actions
The enclosed SR letter articulates broad criteria under which it will
be presumed that an enforcement action will be initiated by the Federal
Reserve against an institution that receives a less than satisfactory
rating after a Phase II or Phase III review. Under the guidelines set
forth in the enclosure, banking organizations rated as "needs improvement"
or "unsatisfactory" for serious violations of FFIEC Year 2000 compliance
standards will be subject to public formal enforcement actions addressing
their deficiencies. Such actions may include the issuance of a cease and
desist order for significant violations of FFIEC standards, or the assessment
of a civil fine for failure to comply with previous supervisory orders
or directives, depending on the seriousness of the deficiency and the
time left before the century date change.
Applications Policy
As in Phases I and II of the supervision program, banking organizations
considering mergers and acquisitions or seeking other regulatory approvals
should take into account their ability to ensure the Year 2000 readiness
of the consolidated organization, as well as their own compliance with
the FFIEC's Year 2000 guidelines. Potential applicants with less than
satisfactory Year 2000 ratings will be instructed to continue to consult
with appropriate Reserve Bank officials regarding mergers, acquisitions,
and other expansionary plans prior to entering into such proposals or
publicly announcing them.
It is essential that each banking organization consider its Year 2000
readiness as one of its highest priorities. Accordingly, the boards of
directors and senior management of all financial institutions are strongly
encouraged to take the steps necessary to ensure Year 2000 readiness and
compliance with the FFIEC guidelines.
Additional FFIEC Guidance on Year 2000 Customer Communications
The FFIEC has issued the enclosed additional guidance to financial organizations
regarding communications with customers about the Year 2000. The release,
entitled "Year
2000 Customer Communication Outline," addresses key elements that a
financial institution may wish to incorporate into its customer communications
statements. The outline supplements the FFIEC's May 1998 "Guidance on Year
2000 Customer Awareness Programs." Both documents emphasize the Federal
Reserve's and other banking agencies' strong belief that financial institutions
should develop customer awareness and communication programs about the Year
2000 that provide clear information and respond to questions and concerns
raised by customers. Customer awareness programs are a critical means of
ensuring customer confidence in their own banks and the U.S. banking system
in general.
For Additional Information
For additional information regarding these publications 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.
You may also contact Ms. Angela Desmond, Year 2000 Project Manager, at
(202) 452-3497, or Ms. Jamie Lenoci, Senior Financial
Analyst, at (202) 452-2288, both of the Federal Reserve
Board, about the FFIEC Guidance regarding customer communication.
If you have questions about the Federal Reserve System's Century Date
Change Project, please contact your local Business Development office,
as listed below:
| Los Angeles |
|
(213) 683-2292 |
| Portland |
|
(503) 221-5787 |
| Salt Lake City |
|
(801) 322-7927 |
| San Francisco |
|
(415) 974-2851 |
| Seattle |
|
(206) 343-3771 |
FEDERAL RESERVE BANK OF SAN FRANCISCO
|
