National bank examiners are getting new instructions on Internet supervision, according to a release due out today from the Office of the Comptroller of the Currency.

The agency's main message is boiled down to a simple statement in the examiner guidelines:

"The challenge for national banks is to make sure the savings from Internet banking technology more than offset the costs and risks associated with doing business in cyberspace."

The 95-page booklet's subtext is a warning that banks planning to be active on-line make sure they know how to identify and avoid potential problems. The risks they may encounter, it explains, differ in both type and scope from those common to brick-and-mortar branch banking.

"We're releasing this now so that our bankers are thinking about it and taking the proper steps and don't get blindsided. That's the purpose of supervision," said Clifford A. Wilke, the agency's director for bank technology.

Mr. Wilke said that about 4% of Americans used on-line banking services last year. The figure has risen to 6% this year and is projected to be 20% to 25% by 2002.

Forrester Research, Cambridge, Mass., predicts similar growth.

It says the number of U.S. households that bank on-line, currently four million to five million, will surge to 18.5 million by 2003.

The Comptroller's office says 530 national banks currently offer customers the ability to conduct transactions on-line. It expects that number will more than double in the next 12 to 18 months.

Right now, says Mr. Wilke, about 17% of all banks with assets of less than $1 billion offer on-line services. The OCC expects the total to be closer to 80% by 2002.

Among the worries facing banks on-line is a dramatic increase in transaction risk.

In addition to the potential for systems to fail because of internal flaws is the possibility that computer hackers could attack systems directly.

Banks with imperfect control over their systems can expect strong customer reaction, the handbook warns: "Customers who do business over the Internet are likely to have little tolerance for errors or omissions from financial institutions that do not have sophisticated internal controls to manage their Internet banking business."

It devotes considerable attention to the strategic hazards of on-line banking. It says bankers should make sure the services they sell fit their overall business plan and risk profile, and that they have employees with the expertise to monitor on-line operations.

Because many customers are apt to shop actively for favorable interest rates, Internet bankers face increased interest rate risk and a corresponding rise in liquidity risk. Loan portfolio management systems must be capable of accounting for this increase in volatility, the report says.

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