Finance and Y2K.

• Author: Middleton, Saundra
• Position: Alaskan banks deal with year 2000 computer problem

Banks are ahead of most when it comes to Y2K preparation. That's because they've been ordered to comply with Y2K-preparation plans or be shut down.

The Crash of '29 was recent enough to strike fear into many concerned about the financial world and how the Year 2000 computer glitch will affect it. Public faith and computers are key ingredients to the banking industry. Either could turn sour January 1, 2000.

"Let's face it, everything is driven by where the money is," states Eric Bingham, internal auditor at Denali Alaskan Federal Credit Union, "Realizing this, the government told the regulators to get after the banks."

The Federal Financial Institutions Examination Council (FFIEC) governs the regulatory agencies assigned to each financial institution, such as the Federal Deposit Insurance Corp. (FDIC) or the National Credit Union Administration.

June 1996 marked the first FFIEC advisory letter addressing Y2K. Others followed, detailing specific procedures and guidelines for banks tackling a Y2K project.

As a result, several milestones were established for banks concerning assessment, regulatory audits and testing: By the first of this month, banks were to have completed most of their testing on internal systems. The end of June marks the deadline for third-party testing and implementation of the upgraded systems.

If banks don't comply, states Anna Rice, senior vice president for National Bank of Alaska, "regulators have the authority to order the bank to concentrate only on Y2K. They can halt branch expansions. Worst case scenario-they can close a bank."

In the past year, several Lower 48 banks merged due to their extreme lapse in Y2K-readiness.

FDIC's first audit was completed last May. Out of the 6,054 institutions examined, 88 percent were at a satisfactory level. This means milestones were completed on time and banks had complied with other guidelines detailed in agency letters. FDIC found 12 percent needing improvement, indicating some benchmarks had not been reached, yet could be within 30 days. Less than 1 percent of the institutions were unsatisfactory. These institutions will be monitored closely. (Another survey showed about 95 percent of depository institutions were at satisfactory levels by mid-year '98.)

Moving into the next round of exams, due by March 31, 1999, harsher supervisory actions will be issued for those banks failing to comply or who slip into unsatisfactory status.

An independent survey completed in October of 1998...