The number of banks and thrifts with an "unsatisfactory" year-2000 grade fell to just 16 at yearend from 46 at June 30, the Federal Deposit Insurance Corp. reported Wednesday.
Roughly 97% of the 10,415 FDIC-insured banks and thrifts were rated "satisfactory" in preparing for the millennium date change and 3% received the next-best rating of "needs improvement."
The agencies had been predicting that more banks, not fewer, would fail to meet regulatory requirements during the second half of 1998. During those six months, institutions were required to fix the code on their internal computer programs, test those fixes, determine their customers' readiness for 2000, and assess the resulting credit risk.
"I'm surprised," said Frank A. Hartigan, year-2000 project manager at the FDIC. "I expected the numbers to take a significant turn away from satisfactory."
"It's like night and day," said a Federal Reserve Board official who asked not to be named.
Both officials credited the industry with taking an aggressive approach to the problem. Particularly surprising was the performance of community banks, given early surveys showing that small banks were not spending much on the problem.
After completing a second round of on-site exams at roughly 20% of the 6,000 state banks it supervises, the FDIC reported that not a single one has been rated unsatisfactory. The Fed, which has completed about two- thirds of the so-called Phase II exams, reported similar results for Fed- member state banks.
At the Office of Thrift Supervision, regional staff forecast that the percentage of "satisfactory" thrifts would fall to 85% or 90%. But "Y2K seems to have gotten thrift management's attention," said Dorothy Van Cleave, the agency's year-2000 coordinator.
As for national banks, the Office of the Comptroller of the Currency said that 97% received "satisfactory" ratings. But in comments last week at the Bank Administration Institute's Y2K Summit in Orlando, Mark O'Dell, director of year-2000 policy at the agency, cautioned that ratings "may fluctuate in 1999."
In addition, the yearend statistics largely fail to reflect the industry's performance in the crucial "testing" phase, where banks and thrifts test their renovated systems to make sure they work properly.
Though there are interim deadlines, the final deadline for banks to complete the testing phase is June 30.