Summary

The Federal Reserve has been taking the Year 2000 problem very seriously, devoting considerable resources and effort to ensure that the financial institutions it oversees mitigate Year 2000 risks. It also has been emphatic in alerting these institutions to the problem and has recently completed a detailed assessment of the banking industry's readiness and issued important Year 2000 guidance in conjunction with other financial institution regulators. The Federal Reserve plans to conduct additional readiness examinations between July 1998 and March 1999. However, the Federal Reserve, like other regulators, faces significant challenges in ensuring that individual institutions will be ready for the Year 2000. The primary challenge is time. With less than 16 months remaining before January 1, 2000, the Federal Reserve, with its small number of examiners, must carefully track the remediation efforts of more than 1,600 financial institutions, service providers, and vendors. The time pressure is compounded by the fact that the Federal Reserve was late in starting a detailed assessment of the industry's Year 2000 status and in issuing key guidance to banks to help them overcome Year 2000 risks.

GAO noted that: (1) FRS has been taking the year 2000 problem very seriously, devoting considerable resources and effort to ensure that the institutions it oversees mitigate year 2000 risks; (2) it also has been emphatic in alerting these institutions to the problem and has recently completed a detailed assessment of the industry's readiness and issued important year 2000 guidance in conjunction with other financial institution regulators; (3) further, FRS is planning to conduct additional readiness examinations between now and March 1999; (4) however, FRS, like the other regulators, still faces significant challenges in providing a high level of assurance that individual institutions will be ready for the year 2000; (5) the primary challenge is time; (6) with less than 16 months remaining until January 1, 2000, FRS, with a small number of examiners, must carefully track remediation efforts being carried out by 1,618 financial institutions, service providers, and vendors; (7) this time pressure is compounded by the fact that FRS was late in initiating its detailed assessments of the industry's year 2000 status and in issuing key guidance documents to banks to assist them in mitigating their year 2000 risks; (8) to alleviate this pressure and to better ensure its readiness to address upcoming challenges, it will be important for FRS to complete the development of its supervision plans to define in detail the tasks it must complete in the 16 months remaining; and (9) it will also be essential for FRS to develop a higher level of assurance that it has enough technically qualified staff, trained in a timely manner, to carry out its supervisory and evaluation responsibilities through the year 2000.