Small banks still scrambling - BankBoston efforts to head off Year 2000 software problems - Company Operations

Software Magazine, Nov, 1997 by Julekha Dash

Imagine losing your life savings in the Year 2000 because your bank didn't fix its millennium date bug in time and was forced out of business. That's a scenario federal regulators are trying to avoid by setting Year 2000 milestones for the banking industry. Regulators have targeted December 31, 1998 as the date by which banks should complete their code conversion and begin testing. Banks were expected to have assessed the scope of their projects by September 30, 1997. While industry experts claim that larger banks should not have a problem meeting these target dates, the challenge is more daunting for smaller banks whose pockets are not as deep.

A recent survey of 153 community banks conducted by the American Bankers' Association (ABA) reveals that almost one-fifth of the banks that participated did not meet the September 30th deadline and are just becoming aware of the Y2K problem. Only one in five had begun converting code while the majority, nearly two-thirds, were in the assessment stage. Ty Carter, ABA's associate director of information technology, says the organization defines community banks as those with assets fewer than $1 billion.

One bank that got a headstart on fixing its millennium problems is BankBoston, which began its Y2K project in 1995. BankBoston has 14 applications that have been Y2K-certified and 170 applications left to convert. The bank expects to finish converting all of its critical applications by the target date set by federal regulators.

Steve McManus, communications manager for BankBoston's millennium project team, acknowledges the challenge smaller banks face. BankBoston has a 40-person Y2K project team whereas "many banks don't even have 40 people on staff," he says. Many smaller banks that lack an internal IT staff must turn to outsourcing their conversions, which often means they have less control over the project. How do small banks regain control? Testing is key, says the ABA's Carter, who advises banks to make sure their Y2K project timeline allows for testing of the vendor's system. "Time is running out," warns Carter. "There's not much time [left] to test."

McManus adds that banks must also test to ensure that they can exchange electronic data with other banks and payment networks such as Plus and Cirrus. For its part, BankBoston has tested future-dated ATM transactions to ensure that customers can make an ATM withdrawal from a Bank of America ATM in Connecticut and still have the funds cleared from their BankBoston account.

McManus is optimistic about the ability of smaller banks to meet the target dates as long as they get right to it.

"If they start now, they can do this," he says. "If they procrastinate, they may have to sell and [because the system is not compliant] it will be at a discounted price." He advises that banks should view Y2K conversion not as a cost, but rather an "invested asset to the corporation."