Many community banks will need to spend more than they have budgeted to correct year-2000 problems, according to a soon-to-be-released study by Grant Thornton LLP.
Nearly 75% of the 600 community bank executives surveyed said they would spend less than $10,000 this year upgrading information systems. According to a widely held view, banks need to spend $100,000 per $100 million of assets to make sure their computer systems do not crash and disrupt business on New Year's Day 2000.
"There's no magic figure on what banks should spend, but we think these figures are way too low," said Diane M. Casey, national director of financial services for Chicago-based Grant Thornton.
Federal bank regulators are requiring banks to complete renovations of their information systems by Dec. 31 to provide ample time to test new systems before 2000. That includes enhancing codes, monitoring the progress of vendors, and making sure that customer information is accurate.
To gauge the progress of community banks, Grant Thornton mailed surveys in November to more than 5,000 community bank chief executives. Some 600 banks, averaging $155 million of assets, responded.
Of those banks:
*Half said they planned to spend less than $10,000 this year, compared with the 72% that spent at least as much in 1997.
*One-third said they anticipated spending less than $5,000.
*Only 8% have budgeted more than $50,000 this year.
*One-fifth said they did not know how much they would spend and 5% said they would spend nothing.
Insufficient budgets tell only half the story in the looming year-2000 crisis, however.
The survey showed 44% of all community banks have yet to test their vaults and security systems for year-2000 problems. And only 37% have contingency plans if the systems fail and interrupt operations. Just 20% know how their major borrowers are addressing the year-2000 problem.
"We all like to put things off for as long as we can," said Ms. Casey. "But this is one issue where you can't procrastinate."
The full results of Grant Thornton's fifth annual survey of community bank executives will be released March 2. The study also probes community banks' plans for Internet banking, technology investment, and strategies for raising capital.