Banks should be ready to Y2K

Vermont Business Magazine, Mar 01, 1998

Technological advances have helped boost the fortunes of what Mutual Funds magazine tagged as the "red-hot" financial services sector As Banknorth Group CEO William Chadwick summed it up, "We can communicate faster, we can communicate with more information, we can learn more about what our customers need and want, we can do things less expensively."

But technology can be, as lawyers are apt to say, a two-edged sword. With the new millennium approaching, banks around the nation and in Vermont are scrambling to deal with the possibility of a massive financial collapse due to a computer problem commonly summed up by the words "Year 2000."

In an epic piece of shortsightedness, the early designers of the computer industry decided to economize on information transfer by specifying annual dates with two digits, not three or four. Several years ago, programmers began to realize this meant computers might read 00 as the year 1900 instead of the year 2000, causing all sorts of roadblocks to aggregation and accessing of data.

January 1, 2000 isn't the only problematic date. September 9, 1999, read as 9999, can act as a termination code in some programs. February 29, 2000 is another potential problem, because Leap Year is supposed to be skipped every 100 years EXCEPT for years divisible by 400, like the year 2000.

Nationally, the situation has been somewhat schizophrenic, with some software experts insisting the bug is not hard to fix, and some companies specializing in Year 2000 alterations trading with price/earnings multiples of 100 or more. There is even a mutual fund that buys only Year-2000-related stocks, which will presumably become closed-end if the people predicting Armageddon turn out to be the ones who were right after all.

Faced with this fin-de-siecle fubar, Vermont banks have been setting up task forces, contacting software vendors, checking the status of major customers, hiring consultants, testing fixes, and trying to assure regulators that the situation is well in hand, or soon will be.

Some say the extensive cross-checking of all sorts of relationships will act at a valuable exercise in networking, somewhat like an army war game without live ammunition. Others say that such side benefits do not change the fact that Year 2000 compliance has mainly been a colossal waste of time.

But the word from bank executives is that customers have little to fear, thanks to the extensive preventive programs. A sampling of their responses to the Year 2000 problem follows.

"We feel confident we have a plan in place that will prepare us in time to do thorough testing before the year 2000," said David Reville, a spokesman for Banknorth Group. Vendors and clients are pan of the plan, and "it's been reviewed and approved by federal regulators," he said. He added, "It's a good time to be a COBOL programmer."

Cynthia Gubb of the Chittenden Corporation said, "It is requiring a lot of work, but we're making progress getting everything set." She observed that, "If you hadn't paid attention, it could have been devastating," with all sorts of timed financial instruments like loans, CDs and IRAs getting thrown off track.

"We've been working on it for two years," said Jennifer Engle of KeyBank. Three years, said Willie Kennedy, who heads Key's Year 2000 project from Ohio. It's a serious enough issue for the Office of the Comptroller of the Currency to be holding meetings of representatives from 35 of the nation's top banks every two months, he said.

The software aspects aren't that hard to correct, but the scope of operations involved makes the project a challenge, Kennedy said. A weak link in the national data network could cause widespread problems, so, "it has to be 100 percent or nothing."

Little banks, too, are facing the issue -- and facing it squarely, according to the National Bank of Middlebury's president Ken Perine. He called it "an issue of quite some importance to the banking industry and for public confidence."

"Basically, it's an issue of programming," Perine said, in which little bugs in software have to be ferreted out. His bank buys its software, so their committee has been working extensively with vendors, and will communicate as much as it can with customers on a prioritized basis. "You can go pretty deep into it," he observed.

The cost, for a bank with $100-500 million in assets, was estimated by one government agency at $10,000 to $100,000, Perine said. "We think we're going to be on the lower end of that," he said.

But that doesn't mean the National Bank of Middlebury is skimping in trying to clean things up. Perine said they have hired a Boston accounting firm, Arthur Andersen, because "we just decided we wanted to hire the best to get this done."

At the First Brandon National Bank, president Scott Cooper said "We're looking at every aspect," adding "This has significant impacts for our customers." With the help of regulators, who have been "very cooperative," they are either finding fixes, getting rid of what's outdated (so far only one 17-year-old computer that "didn't owe us anything"), or charting alternate pathways for avoiding a millennial debacle.