Year 2000 Computing Crisis:
Federal Reserve Is Acting to Ensure Financial Institutions Are Fixing Systems, But Challenges Remain
AIMD-98-248: Published: Sep 17, 1998. Publicly Released: Sep 17, 1998.
- Full Report:
Pursuant to a congressional request, GAO evaluated the Federal Reserve System's (FRS) efforts to oversee that the 1,618 financial institutions it supervises successfully address the year 2000 computer problem.
GAO noted that: (1) FRS has been taking the year 2000 problem very seriously, devoting considerable resources and effort to ensure that the institutions it oversees mitigate year 2000 risks; (2) it also has been emphatic in alerting these institutions to the problem and has recently completed a detailed assessment of the industry's readiness and issued important year 2000 guidance in conjunction with other financial institution regulators; (3) further, FRS is planning to conduct additional readiness examinations between now and March 1999; (4) however, FRS, like the other regulators, still faces significant challenges in providing a high level of assurance that individual institutions will be ready for the year 2000; (5) the primary challenge is time; (6) with less than 16 months remaining until January 1, 2000, FRS, with a small number of examiners, must carefully track remediation efforts being carried out by 1,618 financial institutions, service providers, and vendors; (7) this time pressure is compounded by the fact that FRS was late in initiating its detailed assessments of the industry's year 2000 status and in issuing key guidance documents to banks to assist them in mitigating their year 2000 risks; (8) to alleviate this pressure and to better ensure its readiness to address upcoming challenges, it will be important for FRS to complete the development of its supervision plans to define in detail the tasks it must complete in the 16 months remaining; and (9) it will also be essential for FRS to develop a higher level of assurance that it has enough technically qualified staff, trained in a timely manner, to carry out its supervisory and evaluation responsibilities through the year 2000.
Recommendation for Executive Action
Status: Closed - Implemented
Comments: Each Federal Reserve Bank (FRB) revisited its supervisory review plan to assess the number and adequacy of resources required to monitor testing and contingency planning efforts at supervised institutions and, based on this review, FRBs added staff to their year 2000 teams. In addition, FRS agreed to defer information technology examinations should additional resources be required for the year 2000 effort. Finally, several FRBs implemented specific retention and bonus programs necessary to either hire or retain key staff involved in the year 2000 program.
Recommendation: The Chairman of the Board of Governors of the Federal Reserve System should direct the reserve banks to revise their supervisory review plans by October 1, 1998, to include: (1) a determination of how many technical and other examiners they need to adequately oversee the year 2000 efforts of member banks, data processing servicers, and software vendors; and (2) a strategy for obtaining these resources and maintaining their availability.
Agency Affected: Federal Reserve System