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Summary and Comments

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Category: 

Banking

Date: 

1998-04-07 08:18:32

Subject: 

Government Document: No Hope, But in Bureaucratese

  Link:

http://www.ffiec.gov/y2k/impact.htm

Comment: 

This is a classic bureaucratic document. It describes the threats facing the banking system -- threats that no local bank can solve. There are no known solutions to any of these problems.

It is written in guarded, bureaucratic language. In the name of regulation, this document offers a counsel of despair. "Get working on this, even though it is impossible to fix." It transfers all responsibility for failure to the banks.

The style of this document is uniquely governmental: "Blah, blah, blah; therefore, you're responsible; we aren't."

* * * * * *

Interagency Statement

March 17, 1998 statement

To: The Board of Directors and Chief Executive Officer of all federally supervised financial institutions, service providers, software vendors, senior management of each FFIEC agency, and all examining personnel.

Background:

The Federal Financial Institutions Examination Council (FFIEC) has issued three statements providing guidance on the Year 2000 problem. Two interagency statements were issued in June 1996 and May 1997 to address the key phases of the Year 2000 project management process. The most recent guidance, published in December 1997, outlined the specific responsibilities of senior management and the board of directors to address risks associated with the Year 2000 problem. . . .

The due diligence process outlined in this guidance focuses on assessing and evaluating the efforts of an institution's customers to remediate their Year 2000 problems. Year 2000 issues related to the institution exchanging data with its customers should be addressed as a part of the institution's internal Year 2000 project management program. The guidance recognizes that each institution must tailor its risk management process to its size, its culture and risk appetite, the complexity of its customers, and its overall Year 2000 risk exposure. . . .

Three major types of customers may expose a financial institution to Year 2000-related risks. They include funds takers, funds providers, and capital market/asset management counterparties.

Fund Takers

Funds takers include borrowers and bond issuers that borrow or use bank funds. Failure of fund takers to address Year 2000 problems may increase credit risk to a financial institution through the inability of fund takers to repay their obligations.

Funds Providers

Funds providers provide deposits or other sources of funds to a financial institution. Liquidity risk may result if a funds provider experiences a Year 2000-related business disruption or operational failure and is unable to provide funds or fulfill funding commitments to an institution.

Capital Market/Asset Management Counterparties

Capital market and asset management counterparties include customers who are active in domestic and global financial markets. Market trading, treasury operations, and fiduciary activities may be adversely affected if a financial institution's capital market and asset management counterparties are unable to settle transactions due to operational problems caused by the Year 2000 date change.

Link: 

http://www.ffiec.gov/y2k/impact.htm

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