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Home / Special Report / Banking & Finance: Area institutions race against time to
fix the year 2000 software glitch

Banking & Finance: Area institutions race against time to
fix the year 2000 software glitch

“The need for dates is embedded in the business of banking,” says Kit Needham, senior director of the Banking Industry Technology Secretariat, a division of the Bankers Roundtable in Washington, D.C. The roundtable, an organization of the 125 largest banking companies in the country, works to encourage sound banking and financial policies and practices.
Banking’s mission-critical systems– systems that must work each and every day–include “calculation of interest, the credit-card system, expiration dates, and all are date-dependent,” Needham says.
To save costly memory, most computer software systems were designed to program a date minus the first two digits of the year: dd/mm/yy, or 07/06/97. When the date changes at the beginning of the next century, the year will record as 00, wreaking digital havoc on any system that is date-dependent.
Fixing the problem–known as the Millennium Bug–is not as simple as adding two more digits to the date. It is not unusual for a company to have 100 million lines of code in its software systems, according to de Jager and Co. Ltd., a software-analysis firm in Niagara Falls. Large financial institutions could hit 20 times that number.
Each of those lines of software code must be scrutinized. Software-industry figures roughly estimate the cost of such a project at $1 per line of code. A recent survey of the CEOs of community banks in the United States with assets of $50 million to $1 billion indicates that not everyone in the industry is ready for the century to roll over. In the survey, conducted by Alex Sheshunoff Management Services Inc., 33 percent of the CEOs said they are “not at all prepared” for the technological implications of the year 2000.
Needham does not share that view.
“Ninety-nine percent of banks are right on top of this,” she says. “It is of utmost importance to them. It’s just a small percentage that either haven’t heard about it at all, or somehow have got it wrong.”
Indeed, year 2000 experts say financial institutions are well ahead of most other industries in their conversion efforts. And banks in the Rochester area say they will be prepared when the new century arrives.
Thirty-three percent or 1 percent, the Federal Financial Institution’s Examination Council is not leaving the fate of the American public’s finances up to chance. The council–a joint agency of the Federal Reserve System, the Federal Deposit Insurance Corp., the National Credit Union Administration, the Office of the Comptroller of the Currency and the Office of Thrift Supervision–develops uniform standards to examine financial institutions.
It has published the Year 2000 Century Date Change Initiatives, outlining a project-management process and offering a step-by-step guide to assessing a financial institution’s planning efforts.
The council recommends that “federally insured depository institutions complete an inventory of core computer functions and set priorities for year 2000 goals by Sept. 30, 1997. Banks are expected to largely complete programming changes and have testing well under way for mission-critical systems by Dec. 31, 1998.”
Federal banking agencies plan to conduct a supervisory review of all financial institutions’ year 2000 conversion efforts by mid-1998.
Congress might take a hands-on role as well. The Senate Finance Committee’s financial-services subcommittee is weighing proposals to sanction financial institutions that allow the Millennium Bug to cause problems with customer accounts.
That prospect is not the only reason banks are not waiting until the 11th hour to tackle the problem. Writing new code, a time-consuming chore, is only the first part of the job. Testing, then debugging, the software systems is the next, more unpredictable step.
The FFIEC recommends that banks take a year for testing, before officially going online, to ensure a fluid transition for bank customers.
Banks that serve the Rochester area say they are already working on the year 2000 issue.
“Clearly anyone in the field has acknowledged that this could be a problem,” says Barbara Laughlin, executive vice president with responsibility for technology and research at M&T Bank.
Banks depend on the confidence of their customers, she says. Ignoring the Millennium Bug would destroy a financial institution.
“What if your bank issues an ATM card to you in 1997 with a three-year expiration date? In the year 2000, (with software upgrading) the money machine won’t recognize the card, and you won’t have any money,” she offers as an example. “Or try a home equity loan with a five-year duration. Payments would be calculated by subtracting 00 from 97–resulting in a 97-year payment schedule, with delightfully (to the payer) small payments.”
Through computerization, banking has become a complex process that bears little resemblance to the days of stamping passbooks at a teller window.
“An awful lot goes on behind the scenes in banking with system interfaces,” Needham notes.
Take the bank card, for example. The bank that owns the card handles some of the transaction. But the transaction can pass through other systems as well– such as another vendor’s money machine.
“You could be completely well-prepared, but if you are linking to other entities, you are dependent on them,” says Karl Felsen, upstate communications manager for Fleet Bank. Not only must the systems be compatible, all must be timed together, to go online at the same time.
No one is leaving that up to chance, industry representatives say. Financial institutions have licensing and maintenance agreements with third-party service providers, says Steve Wojciechowski, administrative vice president with responsibility for integrated application systems at M&T Bank.
“We have to understand the relationship with the other providers and we are tracking their progress as well,” he says. If they do not meet year 2000 standards, their contracts would be seriously jeopardized.
“We want the process to be seamless,” says Frederick Kulikowski, CEO and local head of operations for Citibank (New York State). “We have devoted a majority of our system resources to the problem and expect no blips.”
Kulikowski says he expects Citibank’s completed year 2000 project to be ready to test at the end of 1998.
M&T also will be ready to test its new systems at that time, says Wojciechowski.
“We are in a pilot phase and all seems well,” he says. “Our plan is to finish by December 1998 and use 1999 as a buffer year for surprises.”
Expect surprises, Felsen says. Fleet Bank has undergone some large mergers and acquisitions nationally, forcing it “to locate and tear apart all the computer codes,” sooner than many institutions.
“Emergency drills, headaches–there have been all sorts of problems (with the new software),” he says. “It’s given us a leg up, though. While most other institutions are just getting started, we’ve already been able to build the year 2000 into our system.”
According to the Sheshunoff survey, half of the respondents estimated the cost of compliance at $10,000 to $50,000. At $1 a code line, though, the costs could add up to much more.
“The real story, in our opinion,” says Ken Johnson, Sheshunoff’s senior technology consultant, “is that most of the institutions that responded are dramatically underestimating the true cost.”
M&T Bank estimates it has 25 million lines of code companywide. Bank administrators declined to provide their year 2000 budget figures for this story–“There are so many ways to figure the cost,” says M&T’s Laughlin, “with the money coming from different budgets”–but there is no doubt that the numbers are sizable. “These institutions are certainly using some financial resources that they might prefer to use on other things,” Needham says.
For small institutions with fewer resources, she adds, there are outside software vendors to turn to for help.
That is the route taken by Fairport Savings & Loan Association.
“We put in a new, four-digit system about a month ago,” says Eileen Sek, associate vice president at the S&L. Rather than devote internal resources to the project, Fairport Savings & Loan used a consulting firm to develop the new system, which employs an in-house server.
“And yes, it was expensive,” Sek says. “But the whole system is a very advantageous upgrade over what we were using before.”
Whatever the cost, Needham says, “banks have no choice but to spend the time and money on this issue.”
(Kathy Quinn Thomas is a Rochester-area free-lance writer.)

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