Capital Briefs: Fed to Rate Banks on Preparedness for Euro

The Federal Reserve Board plans to rate banks on their readiness for Europe's monetary conversion.

Fed examiners will judge U.S. and foreign banking organizations they supervise as "high," "medium," or "low" risk and will grade each bank's conversion plan as "strong," "acceptable," or "weak," according to guidance dated June 12.

"This is an international economic event of almost unparalleled magnitude that will fundamentally change the way business is conducted in Europe," the Fed wrote. "Lack of timely preparation for the Jan. 1, 1999, introduction of the Euro may mean foregone business opportunities, a loss of customers, and an inability to participate efficiently in interbank operations."

Eleven European countries will form an economic and monetary union on Jan. 1, beginning a three-year transition to a single currency. Banks doing business in Europe need to address strategic, technological, contractual, and communications issues related to the conversion, the Fed said.

For example, banks' computer systems must be able to convert national currencies to euros. Financial institutions also need to review their cross-border loan contracts, consider new business opportunities created by the conversion, and be aware that the elimination of foreign exchange risk will probably lead to greater competition in European markets. The agency set a July 31 deadline for its examiners to finish reviews of all banks with "significant" European operations.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER