Regulators warned bank directors and officers that they could be personally liable if their institutions are not ready for the year-2000 computer bug.

"We do have the option to pursue professional liability lawsuits," said Sandy Comenetz, Federal Deposit Insurance Corp. counsel for year-2000.

Speaking at the American Bankers Association annual convention here, Ms. Comenetz said directors must "ask lots of questions" about how senior management is tackling the millennium bug. They also must "read and heed" guidance issued by regulators and conduct "independent and diligent" reviews of management's compliance program.

"An uninvolved director cannot claim protection from" a lawsuit, Ms. Comenetz said.

Inside directors are in particular jeopardy, she said. Where state law permits, the FDIC would sue these directors under the easy-to-prove simple negligence rule, which means their error helped cause the bank to fail, she said. Outside directors, however, would be accused of gross negligence, a standard that requires the FDIC to show that the official knew or should have known that he was not adequately reviewing year-2000 compliance, she said.

Directors and officers at banks that do not fail but are temporarily closed by year-2000 troubles could be subject to civil money penalties, she said, though a final decision on whether to bring those types of actions has not been made.

Mark L. O'Dell, director of year-2000 at the Office of the Comptroller of the Currency, warned that some bankers still do not take the problem seriously. He noted that a French banker was recently quoted in a magazine as saying the millennium bug is a "smoke screen" thought up by the United States and Great Britain to steal attention from the coming launch of the euro.

Mr. O'Dell noted that there are three major deadlines coming up in the next nine months. By Dec. 31 banks must complete their internal testing, by March 31 they must finish their primary testing of service providers, and by June 30 all testing of any kind should be done.

The OCC was itself criticized when the agency's deputy inspector general, Richard B. Calahan, said year-2000 staffing at large national banks "appeared thinly spread." At a Sept. 17 House Banking Committee hearing, he said the OCC had assigned just one full-time examiner to monitor the compliance efforts of two banks with combined assets of $310 billion. Both banks operate nationwide and one had data processing centers in seven countries, he told lawmakers. Recent agency efforts to increase staffing were helpful, but may not be sufficient, Mr. Calahan added.

The agencies currently expect few failures from year-2000, though the FDIC had taken 306 enforcement actions against banks as of Aug. 31, Ms. Comenetz said. Only six have been formal cease-and-desist orders.

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