Banks that miss key year-2000 deadlines will pay for it, the Federal Deposit Insurance Corp. said Wednesday.

In a letter to state nonmember banks, FDIC Supervision Director James L. Sexton outlined new criteria his examiners will use to assess year-2000 preparations.

To get a "satisfactory" rating, by June 30 a bank should have tested and largely implemented all its repaired computer systems, assessed borrowers' and counterparties' readiness, developed an effective strategy for educating customers, and nearly completed work on a business resumption plan.

Banks that miss a deadline by fewer than 30 days will generally be rated "needs improvement," while those further behind will be judged "unsatisfactory," Mr. Sexton said.

Both groups may also be penalized.

The Camels rating of such institutions could be lowered, their deposit insurance premiums raised, and their merger or branching applications held up or denied, he warned. They could also be subject to cease-and-desist or so-called safety-and-soundness orders, and to civil money penalties if they fail to comply.

Other bank and thrift agencies are moving on parallel tracks. In February, for example, Comptroller of the Currency John D. Hawke Jr. sent a similar letter to national banks.

Some tardy banks are already being punished. As of March 31, the FDIC's supervision division had issued 10 cease-and-desist orders and 22 safety- and-soundness orders, though none of these have resulted in civil money penalties.

In addition, some banks' Camels ratings or the management component have been downgraded.

"The general migration has been toward "satisfactory," so the number of institutions that are being subject to actions is declining," said Frank A. Hartigan, year-2000 project manager at the FDIC.

As of March 31, 5,709 of the 5,867 banks supervised by the FDIC, or 97.3%, were rated "satisfactory." The number judged "needs improvement" was 144, down from 163 at yearend, while the number deemed "unsatisfactory" was 14, up from six at yearend.

Mr. Sexton's letter marks the final phase of the year-2000 examination process. Bank and thrift regulators completed their first round of on-site examinations and year-2000 ratings last June 30 and a second round March 31. Between now and the rollover next Jan. 30, most institutions will be contacted or visited at least quarterly, with the exact frequency based on historic performance and other factors.

Also Wednesday, the President's Council on Year 2000 Conversion issued a report that found financial institutions have made "excellent progress" and are not expected to experience serious problems come Jan. 1.

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