In the space of a a few months, the term "Y2K" has gone from being an obscure acronym for the year-2000 computer problem to a catch phrase blithely tossed about by every low-tech poseur east of Silicon Valley.

The issue, which first emerged only in the most arcane technical newsletters, is now earning feature articles and even cover stories in mainstream publications like BusinessWeek and Money.

Who could have guessed that the year-2000 problem would become so all- consuming?

Not everyone in the banking industry is convinced that the inability of some computer chips and software programs to distinguish between the 20th and 21st centuries is so dire. Some suspect that consultants are overstating the dangers to position themselves as year-2000 saviors and profit from the hysteria.

But if the mammoth attention devoted to the issue by bank regulators is any indication, the year-2000 problem is more than pesky.

The Federal Reserve Board, for example, expects to spend $100 million just to renovate its own computer systems, while the Federal Deposit Insurance Corp. has made the millennium problem its No. 1 safety-and- soundness issue.

Frank A. Hartigan, project manager for the FDIC effort, joked at a recent conference that co-workers greet him in the hall as "Mr. Y2K."

"Our whole life is wrapped up in this," he said.

Regulators hope bank managers can say the same.

The oversight process began calmly enough in June 1996. That month, the Federal Financial Institutions Examination Council wrote financial services CEOs to explain the year-2000 problem and broadly outline steps for remedying it.

Today, the four overseers are double-checking banks' plans to renovate and test their systems. They also are showing keen interest in the year- 2000 readiness of software vendors and data service providers, on which many institutions rely.

It is still early enough in the process that all but the most derelict or incompetent institutions are getting the chance to fix their own problems.

In most cases, regulators are dealing with noncompliance by sending notification letters, increasing the frequency of follow-up contacts, requesting board resolutions, or drafting memoranda of understanding. Formal enforcement actions, such as cease-and-desist orders, have been extremely rare.

But as Y-Day draws closer, the stakes are growing higher-and so, soon, may the enforcement heat.

FDIC staff members, for example, are discussing whether they have the authority to close or sell a bank on the basis of "technological failure," rather than insolvency.

Gordon Glaza, regulatory counsel at the American Bankers Association, said he thinks they do. "They don't really need additional legislative guidance to do this because it's all being handled as part of their overall risk management and safety-and-soundness procedures," he said.

If regulators do begin seizing nonconforming banks and thrifts, it will not happen all at once. They have rejected the idea of setting a monolithic drop-dead date, preferring to time their decisions on a case-by-case basis.

But like popcorn in a microwave, closures are likely to occur more furiously as the end draws near.

Bank supervisors do need to build in time for due process. In the worst- case scenario, an institution refuses to stipulate to the seizure, and the new century arrives before the legal issue can be resolved.

If that happens, both parties may find themselves in the unemployment line faster than you can say "Y2K."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.