Feds Release Y2K Testing Guidelines. Now the Hard Work Begins

By the end of this month regulators were expected to have finished their initial reviews of every banks' preparations for the Year However, if your bank, like many, received a satisfactory review, now is still not the time to sit back and relax. Testing phase looms far banks To this point, the regulators essentially have been doing a high-altitude fly-by, says David M. Iacino, senior manager for the Millennium Project at BankBoston, N.A. Year 2000 job--and regulators' scrutiny of it--have a long road ahead of them. Regulators have been saying for some time now that banks' effort to test their systems (or their efforts to confirm vendor testing of outsourced processing) would represent more than half of the effort and expense of Year 2000 preparation. In mid-April, the Federal Financial Institutions Examination Council released long-awaited testing guidelines for Year 2000 preparations, including updated compliance deadlines. (See Key Year 2000 dates.) The deadlines seem quite aggressive, but, after all, we're running out of time, says Jim Mastera, executive vice-president and head of Y2K efforts for $157 million-assets Cornhusker Bank, Lincoln, Neb. bank has been testing what it could for some time--personal computers and such. In early May the bank's mainframe system was being replaced with a new one that was promised to be Year 2000-ready and in April examiners were satisfied with efforts made up until that point. Of course, says Mastera, aren't doing this for the examiners. We're doing it because we want to be around on Jan. 1, 2000. Cornhusker Bank has a great deal of company. ABA has been holding regular Y2K teleconferences and typically polls participants about the issue. In late April, bankers were asked where their preparations stood. answered as follows: Assessment 3% Implementation 70% Testing 24% Monitoring 3% What has been seen thus far by examiners typically is only the blueprint for a bank's approach to the problem. I could build a perfect and still not be on the ball, says John McIsaac, president of Market Partners, a Y2K consulting firm based in West Chester, Pa., which is working with ABA. One bank his firm visited recently had been certain that its plan had been airtight. By the time the Market Partners' audit had been completed, more than 100 shortcomings had been found, says McIsaac. Impact differs by bank size For smaller banks, says McIssac, the testing guidelines are quite timely, because many of the banks he works with are not yet in the testing phase. There is still a fair number of banks not on top of things yet, McIssac says. On the other hand, the largest banks are well into their testing phase, says McIsaac, so, if anything, they will have to be prepared to demonstrate to examiners that their systems have tested out. Regulators have stressed that when they look at testing that they will be looking at processes and procedures, not at the nitty gritty details, and that they won't be running their own tests. Bank-Boston's Iacino says his bank has already had examiners in to look at its testing effort and found that the examiners performed much as advertised. They didn't come in and say, 'Show me your test results', says Iacino. They asked, 'What's your process?', 'What's your testing standard?', 'What dates did you test for?' Iacino says the bank had to show the exam team its testing planning documents, explain its process, and make testing personnel--including the manager of vendor oversight--available for interviews with examiners. Did it come as a surprise that the examiners didn't ask to see actual test results? Not to Iacino.. If we had shown them the test results, they'd have been buried, he explains. A Y2K problem...right now Testing can be of more immediate import than some bankers may think. Banking--and the rest of the world, for that matter-is still more than a year away from the day when all noncompliant computer systems are supposed to go tilt. …