Comptroller of the Currency Eugene A. Ludwig told Congress on Tuesday that banks are not doing enough to fix year-2000 computer problems.
"Some national banks and some vendors need to speed up their efforts in order to complete their year-2000 preparations in a timely manner," Mr. Ludwig told the House Banking Committee.
One-third of community banks are either unaware of the problem or just starting to deal with it, he warned.
The hearing was the latest in a series held by Congress this year to hold regulators and bankers' feet to the fire. Regulators, bankers, and consultants agreed the industry needs to do more.
"Smaller banks, especially those relying heavily on external service providers, have been slower to recognize and respond to the year-2000 issue," said James R. Devlin, vice president and director of the year-2000 enterprise program office for Citibank N.A. "To the extent that their service providers don't have active year-2000 programs, these banks may be at risk."
Gartner Group research director Lou Marcoccio said larger banks cannot rest on their laurels.
"Large banks have made progress during the past year, but are advancing at a slower pace than large insurance companies or large financial investment companies," he said.
Lawmakers vowed to introduce legislation to protect banks and their customers.
Sen. Robert F. Bennett, chairman of the Senate Banking subcommittee on technology, said he would propose requiring publicly traded companies to inform investors of anticipated costs of year-2000 lawsuits.
"It is essential in my opinion that Congress act and act very quickly," the Utah Republican told the House committee.
To protect thrifts, House Banking Committee Chairman Jim Leach plans to introduce shortly a bill authorizing the Office of Thrift Supervision to examine outside vendors. The three banking agencies already have this power.
"This bill would go a long way toward keeping thrift institutions from hitting the wall in 2000," Paul A. Schosberg, president of America's Community Bankers, told a crowd of 1,500 thrift executives at the group's annual convention in San Francisco Tuesday.
At the committee hearing, Mr. Ludwig said banking and thrift regulators will provide institutions with guidance in four key areas next year: management of vendors, testing of computer systems, oversight by boards of directors, and assessment of how the failure of a customer to correct a year-2000 problem could disrupt the bank.
Institutions will be instructed to monitor the progress of their vendors in repairing year-2000 bugs and ensure outside contractors do not violate the privacy of customer financial records.
"Just as bank supervisors have told bankers to 'know their customer,' banks must also 'know their vendor,'" Mr. Ludwig said.
Financial institutions are expected to have their year-2000-related repairs made by the end of 1998 so testing may occur during 1999.
Regulators said their examination schedule is on track, according to written testimony.
The Federal Reserve Board will inspect every institution and service provider that it supervises by mid-1998, Fed Governor Edward W. Kelley Jr. said. The OCC has completed 500 examinations since June, Mr. Ludwig said.
The Office of Thrift Supervision said it plans on-site examinations of each thrift's year-2000 preparations by mid-1998. The Federal Deposit Insurance Corp. has completed an initial inspection of 81% of the 6,200 institutions it supervises, Acting Chairman Andrew C. Hove Jr. said.
Olaf de Senerpont Domis contributed from San Francisco.
