District Circular Letters

September 20, 1999

BANKING SUPERVISION AND REGULATION:
YEAR 2000-RELATED RISK REPORTING

Beginning October 1, 1999, and lasting through the century date change (event management period), the supervision function of the Federal Reserve will collect information from the larger supervised financial institutions, service providers, and banking organizations presenting identifiable Year 2000 risk about operations, funding and liquidity issues, and customer and market behaviors. The information will be used to monitor, assess and report on the operational status or "health" of financial institutions, markets, and payment and settlement systems to the Board of Governors and senior Reserve Bank management, and more broadly to the general public through the President's Council on Year 2000 Conversion and other appropriate media. The Federal Reserve also will collect information from supervised institutions experiencing problems or disruptions during the event management period.

Collection of Status and Problem Reports during Event Management Period

Year 2000 status information will be collected periodically from domestic and foreign banking organizations that are key participants in U.S. financial markets, state member banks over $1 billion in assets, and foreign and domestic banking institutions that present identifiable Year 2000 risk. The latter group of institutions include those that are currently rated less than satisfactory for Y2K readiness or that pose material concerns, or that were rated less than satisfactory during Phase III or more than once during the Board's Year 2000 supervisory program. In addition, the Federal Reserve will collect status information from service providers and software vendors in the FFIEC oversight program that serve at least 25 banking organizations and for whom the Federal Reserve is the lead regulatory agency. The Federal Reserve will be coordinating these efforts with the other federal banking agencies in order to avoid duplication to the extent possible.

Institutions falling into the above population can expect to be asked for the information contained on the attached BS&R Y2K Status and Problem Report (Y2K Report) via telephone calls. The report asks whether an organization is operating normally. It also asks about funding, liquidity or capital pressures, customer behavior (particularly with respect to credit and cash needs), and markets. Status reports on service providers and software vendors will focus on the status of operations, sources and type of disruptions, client communication, and contingency planning process. An organization that is not operating normally or reports unusual activity in customer or market behavior will be asked to provide a description of the behavior or problem, including the source, severity, expected duration and effect on operations. This Reserve Bank will begin collecting status information on your organization on a monthly basis during the fourth quarter 1999. The frequency of contact will intensify during the rollover period (December 27 through January 7) according to the schedule enclosed.

In addition to the monitoring activities summarized above, Reserve Banks will contact state member banks with assets less than $1 billion on either January 3 or 4 to assess their operational status using the Y2K Report.

Disclosure Responsibilities of Financial Institutions

During the rollover period, financial institutions may be subject to rumors about their operations or may experience internal or external disruptions affecting their ability to provide services to customers or meet obligations to counter parties. Any financial institution supervised by the Federal Reserve should contact their Reserve Bank immediately if such an event occurs. Moreover, institutions are expected to communicate with affected customers and counter parties about the problem and alternative measures that can be or are being taken to minimize its effect. Adherence to these communication policies should be an integral part of an institution's Year 2000 communications program as effective communications will be necessary to defuse overreaction by customers and counter parties if problems do arise and to lessen the potential for disruptions to the financial markets.

Please make sure that affected personnel are aware of the Federal Reserve's monitoring plans during the event management period and are prepared to provide the information contained in the attached Y2K Status Report. Moreover, please take steps to ensure that your event management plans call for effective and timely communications with this Reserve Bank and with affected customers and counter parties as appropriate. Finally, please provide updated information about your institution's event management plans as soon as practicable, including the names and contact numbers of personnel designated to communicate with the Federal Reserve during the event management period as soon as possible.

Questions concerning this letter or any of the related reports and schedules should be directed to our Banking Supervision and Regulation Department at (415) 974-2939.

FEDERAL RESERVE BANK OF SAN FRANCISCO

Attachments