FDIC Warns Against Taking Year-2000 Problem Lightly

A federal regulator warned community banks Monday against taking the year-2000 computer problem too lightly.

Nicholas J. Ketcha, director of supervision at the Federal Deposit Insurance Corp., said some vendors are soft-pedaling the issue. For example, Kansas Bankers Surety Co., in a March 6 letter to directors and officers it insures, compared year-2000 worries with the famous fable of the chicken who cries "the sky is falling" after being hit on the head by an acorn.

"The sky did not fall, and the year 2000 will come and go with banking continuing to be a great business," Kansas Bankers' president Donald M. Towle assured his customers.

Addressing the Independent Bankers Association of America's annual convention here, Mr. Ketcha said the letter sends a dangerous message that banks may ignore the millennium computer bug with impunity. "That is a terrible disservice to the banking industry," he said. "If banks take this approach, we are going to have major trouble."

Mr. Ketcha warned community banks to scrutinize service providers carefully. Smaller vendors may have trouble financing costly repairs and could mislead banks into believing the systems are fixed only to shut down a few months before Jan. 1, 2000, he said.

Banks should band together and hire auditors to oversee their vendors' year-2000 compliance, Mr. Ketcha advised.

Banks should expect to be sued if year-2000 computer problems disrupt operations. "The ambulance chasers are just waiting for the millennium to occur," he said.

He also noted that directors are personally responsible for ensuring that their banks are ready. Referring to the hundreds of director and officer liability suits the FDIC filed in the wake of the banking and thrift failures of the late 1980s and early 1990s, he said, "Memories shouldn't be short. "Rose-colored glasses should not be put on."

The Federal Financial Institutions Examination Council plans to offer banks more guidance this week, he said.

The umbrella regulatory group will explain how to monitor compliance by vendors and how to incorporate year-2000 risks in underwriting decisions. At the end of March, the council will release guidance on how to test systems to ensure year-2000 changes work properly.

In his letter, Mr. Towle said he was writing because regulators were forcing banks to learn whether their directors and officers liability policies include year-2000 coverage.

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