In addition, we reviewed correspondence FRS sent to its examiners and to the institutions it supervises. Addressing the Year 2000 problem in time will be a tremendous challenge for financial institutions and FRS. FRS Is Taking Positive Actions to Assess Financial Institutions’ Year 2000 Readiness

FRS has taken important steps to alert financial institutions to the risks associated with the Year 2000 problem and to assess what these institutions are doing to mitigate the risks. In February 1997, FRS began devoting a full-time effort to the Year 2000 problem, and in May 1997, issued a second, more detailed awareness letter in conjunction with the other FFIEC members. These examinations were completed in June 1998. Challenges Confronting FRS’ Efforts to Ensure That Financial Institutions Are Year 2000 Ready

With less than 16 months remaining before the millennium, FRS must continue to vigorously oversee the Year 2000 correction efforts of more than 1,600 financial institutions, service providers, and vendors. The training, however, was not initiated until January 29, 1998—well after detailed examinations were underway. Lastly, FRS and the other regulators were late in issuing key guidance on business continuity and contingency planning, corporate borrowers, and software and service vendors. FRS currently has 73 information systems examiners—31 full time and 42 part time; it does not yet know whether this number is sufficient to complete technically complex examinations in 1,618 institutions by March 1999. Conclusions

FRS has a good appreciation for the Year 2000 problem, has made significant progress in assessing the readiness of member institutions, and is preparing itself for the work that needs to be done over the next 16 months to ensure that the institutions it supervises are ready for the Year 2000. Recommendations

We recommend that the Chairman of the Board of Governors of the Federal Reserve System direct the reserve banks to revise their supervisory review plans by October 1, 1998, to include (1) a determination of how many technical and other examiners they need to adequately oversee the Year 2000 efforts of member banks, data processing servicers, and software vendors and (2) a strategy for obtaining these resources and maintaining their availability. Copies will also be made available to others upon request.
Why GAO Did This Study

Pursuant to a congressional request, GAO evaluated the Federal Reserve System's (FRS) efforts to oversee that the 1,618 financial institutions it supervises successfully address the year 2000 computer problem.

What GAO Found

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.