YEAR 2000

Financial Institution

and Regulatory Efforts

to Address

International Risks

United States General Accounting Office

GAO Report to the Ranking Minority Member

Committee on Commerce

House of Representatives

April 1999

GAO/GGD-99-62

United States

General Accounting Office

Washington, D.C. 20548

General Government Division

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GAO

April 27, 1999

The Honorable John D. Dingell

Ranking Minority Member

Committee on Commerce

House of Representatives

Dear Mr. Dingell:

On July 29, 1998, you requested that we review the international risks that

the Year 2000 computer problem poses to U.S. financial institutions.1

 These

institutions are active participants in international financial markets as

dealers of foreign exchange and derivative products, lenders to foreign

organizations, and investors in foreign securities. You were concerned that

U.S. financial institutions could encounter significant difficulties in

operating internationally and could potentially incur substantial losses on

their trading and investment activities if foreign markets and financial

institutions have not adequately prepared their computer systems to

correctly process Year 2000 dates.

To address your request, we assessed the extent to which (1) large,

internationally active U.S. financial institutions were addressing

international Year 2000 risks; (2) U.S. banking and securities regulators

were overseeing these risks for the institutions they regulate; (3) large

foreign financial institutions and their regulators are addressing Year 2000

risks; and (4) other issues may require attention before 2000 arrives.2

Large U.S. financial institutions have financial exposures and relationships

with international financial institutions and markets that may be at risk if

these international organizations are not ready for the date change

occurring on January 1, 2000. However, the seven large U.S. banks and

securities firms we visited were taking actions to address these risks. They

had identified the organizations with which they had critical foreign

business relationships, had assessed the Year 2000 readiness status of

these organizations, and were developing plans to mitigate the risks that

would be posed by the lack of Year 2000 readiness of one or more of these

 1

For this assignment, we addressed the activities of large U.S. banks and securities firms.

2

You also asked us to review Year 2000 issues for the insurance industry. We are providing the results

of that work in a separate report to be issued at a later date.

Results in Brief
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organizations. They told us that they did not expect potential Year 2000

disruptions to have much long-term effect on their global operations.

U.S. banking and securities regulators were also addressing the

international Year 2000 risks of the institutions they oversee. Banking

regulators had issued guidance for banks on addressing international Year

2000 risks and were assessing bank preparations for these risks during

bank examinations. Securities regulators, although not directly responsible

for securities firms’ foreign activities, were assessing these firms’ efforts to

address international and other external Year 2000 risks using information

obtained through the regulated U.S. broker-dealer affiliate.

Foreign financial institutions reportedly have lagged behind their U.S.

counterparts in preparing for the Year 2000 date change. One of the major

reasons cited for the lag was that these firms also had to make systems

modifications to prepare for the introduction of a new European currency

in January 1999. Officials from four of the seven large foreign financial

institutions we visited said they had scheduled completion of their

preparations for Year 2000 about 3 to 6 months after their U.S.

counterparts, but they planned to complete their efforts by mid-1999 at the

latest. The officials also said they were assessing the readiness of the

entities with which they did business. Foreign regulators in France,

Germany, Japan, Korea, and the United Kingdom said they were assessing

the readiness of the institutions they oversee, but their efforts generally

appeared less extensive than those of U.S. regulators. In addition, key

international market support organizations, such as those that transmit

financial messages and provide clearing and settlement services, told us

that their systems were ready for the date change and that they had begun

testing with the financial organizations that depended on these systems.

Two international organizations created to assist international Year 2000

efforts, the Global 2000 Coordinating Group and the Joint Year 2000

Council, were also playing a major role in assessing readiness and helping

global financial market institutions and regulators address Year 2000

issues.

As the Year 2000 approaches, some issues will continue to require the

attention of U.S. and foreign financial institutions and regulators. For

example, officials from the large U.S. and foreign financial institutions we

visited said they were concerned about the readiness of foreign

infrastructure providers, such as those that supply telecommunications,

power, water, and other services. The readiness of these organizations is

important because financial institutions and their international

counterparts depend on these providers for their continued business
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operations. Another issue that financial regulators and financial

institutions said they were addressing that will require continued attention

was the need for mechanisms to coordinate actions and information

among regulators and other organizations during the date change period.

Promoting additional Year 2000 readiness disclosure by foreign

organizations was an additional issue for which regulators have taken

steps and which financial institutions saw a continued need to address. As

2000 approaches, the availability of such disclosures will be critical for

financial institutions in planning for and addressing Year 2000 risks. In

addition, regulators acknowledged the need to continue developing

strategies for communicating the readiness status of the financial sector to

alleviate concerns among members of the public.

The Year 2000 problem exists because the data that computers store and

process often use only the last two digits to designate the year. On January

1, 2000, such systems may mistake data referring to 2000 as meaning 1900,

possibly leading to numerous errors and disruptions in processing.

Financial markets in the United States and countries throughout the world

are highly dependent upon the accurate transmission of electronic

information, and thus the systems they use must be readied to correctly

process Year 2000 dates.

If the computer systems used by foreign financial markets and institutions

are not ready for the Year 2000 date change, U.S. financial institutions

could be adversely affected in various ways. If systems used by foreign

markets fail, U.S. institutions may not be able to alter their holdings of

foreign financial assets. Market closures and the resulting uncertainty

could also cause dramatic drops in prices, thereby producing large losses

for U.S. institutions holding such assets. If foreign financial institutions’

systems are not ready, U.S. institutions may not be able to access financial

assets held by their foreign business partners and customers or may not

receive payments owed by such institutions. If the systems used by foreign

infrastructure providers, including those providing telecommunications,

power, water, and other services, are not also ready for 2000, U.S.

institutions may not be able to communicate with its foreign business

partners and customers. They may also be unable to conduct financial

transactions with such institutions or within affected countries.

Background
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To gather information on the extent of U.S. financial institutions’

international activities, we obtained data on U.S. banks’ lending exposures

from U.S. banking regulators. For information on U.S. entities’ investments

in foreign securities, we obtained information from the U.S. Bureau of

Economic Analysis and from Morningstar, Inc., which is a private

investment research firm that maintains a proprietary database of U.S.

mutual funds’ investment portfolios. We obtained data on foreign

exchange and over-the-counter derivatives markets from the Bank for

International Settlements. To gather information on how U.S. financial

institutions were addressing international Year 2000 risks, we interviewed

officials and reviewed available Year 2000 documentation from the

headquarters offices of seven major banks and securities firms that were

among the most internationally active financial institutions. We

interviewed additional representatives of some of these firms in countries

outside of the United States. We also interviewed U.S. banking and

securities regulators to obtain information on how U.S. financial

institutions were assessing their international Year 2000 risks.

To gather information on how U.S. regulators were addressing

international Year 2000 risks, we reviewed guidance and other issuances

and discussed international Year 2000 risks with representatives of the

Federal Reserve, the Office of the Comptroller of the Currency (OCC), and

the Securities and Exchange Commission (SEC). We also reviewed these

organizations’ internal analysis summaries of U.S. and foreign financial

institutions’ progress in addressing Year 2000 and securities firms’

regulatory reports by discussing their Year 2000 efforts.

To determine how foreign financial institutions and regulators were

addressing Year 2000 risks, we interviewed representatives of seven large

financial institutions, three market support organizations, and regulatory

agencies in France, Germany, Japan, Korea, and the United Kingdom. We

also reviewed reports and statements by other organizations3

 that have

assessed the Year 2000 readiness of foreign financial institutions. The

foreign countries whose Year 2000 efforts we evaluated included 4 of the

top 10 countries in which U.S. organizations had significant lending and

mutual fund investment exposures. In addition, we interviewed officials

from and reviewed Year 2000-related documents provided by international

market support organizations that are responsible for clearing and settling

transactions, transmitting payment instructions, and other financial

 3

These included organizations such as the Gartner Group, which is an information technology

consulting firm, and the Global 2000 Coordinating Council, which is a private sector group set up to

address international Year 2000 issues.

Scope and

Methodology
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messages. We also interviewed officials from and reviewed documents of

key international organizations that were established to address Year 2000

problems in global financial markets, including the Global 2000

Coordinating Group and the Joint Year 2000 Council.

To identify issues that may require further attention, we interviewed

officials at the organizations we contacted. We also reviewed reports and

other documents issued by U.S., foreign, and international organizations.

Information on foreign institutions and regulation in this report is based on

interviews and secondary sources, not our independent technical or legal

analysis.

We did our work from July 1998 to March 1999 in accordance with

generally accepted government auditing standards. We obtained oral

comments on a draft of this report from staff of the Board of Governors of

the Federal Reserve System and SEC and written comments from the OCC

(see app. I). We discuss their comments at the end of this letter.

Large, internationally active U.S. financial institutions, which account for

most of the financial exposures and relationships with foreign financial

institutions and markets, may be at risk if the foreign organizations are not

ready for the Year 2000 date change. However, officials from the U.S.

institutions we visited told us that they have mostly completed the changes

required to ready their own computer systems to process Year 2000 dates.

With financial relationships around the world, these officials also said they

were assessing the Year 2000 readiness of their customers, business

partners, and financial counterparties. Further, they said that they are

preparing plans to mitigate the risks their international activities pose to

their operations, but that they generally did not anticipate Year 2000

problems in other countries to have a significant long-term impact on their

business operations.

Although many financial institutions may be active internationally, fewer

than 25 large institutions account for most of the total foreign financial

exposures of U.S. banks and securities firms. The Year 2000 readiness of

foreign organizations’ computer systems is important to these large U.S.

financial institutions because they have substantial international financial

exposures.

U.S. financial institutions are active in various global financial activities.

Large U.S. banks and securities firms are active participants in the foreign

exchange markets in which transactions valued at $1.5 trillion were

estimated to be occurring daily as of April 1998. Determining the portion of

Large, Internationally

Active U.S. Financial

Institutions Were

Assessing International

Risks

Large U.S. Financial

Institutions Are Active in

Global Financial Markets
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U.S. financial institutions’ foreign exchange activities that are conducted

with foreign entities is difficult, but about 18 percent of the daily volume of

foreign exchange trading is reported to occur in the United States. The

comparable share of global daily trading volume in London, which is the

most active foreign exchange trading center, was about 32 percent. U.S.

firms are active in London and other world foreign exchange centers as

well. Over-the-counter derivatives dealing is another global financial

market activity in which U.S. financial institutions actively participate.4

About $70 trillion in notional principal was outstanding in June 1998, with

U.S. banking institutions having an estimated $28.2 trillion outstanding as

of that time.5

U.S. banks are also active globally as lenders of funds and, as of June 30,

1998, had a total foreign lending exposure of about $487 billion. Six U.S.

banks accounted for over 75 percent of this total exposure. As shown in

table 1, U.S. banks’ largest lending exposures were concentrated in the

major European markets and Japan.

Dollars in millions

Country Lending exposure

Germany $47,845

United Kingdom 36,835

Japan 36,531

France 32,709

Italy 26,464

Brazil 25,602

Canada 21,868

Netherlands 19,940

Switzerland 19,820

Spain 18,751

Total $286,365

Source: U.S. Federal Financial Institutions Examination Council.

 

4

Derivatives are financial products whose value is determined from an underlying reference rate, index,

or asset. The underlying include stocks, bonds, commodities, interest rates, foreign currency exchange

rates, and indexes that reflect the collective value of various financial products. Over-the-counter

derivatives are distinguished from exchange-traded derivatives because they are privately negotiated

financial contracts.

5

Notional principal amounts, which are the amounts upon which payments are often based, are one

way that derivatives activity is measured. Although these amounts are indicators of volume, they are

not necessarily meaningful measures of the actual risk involved. The actual amounts at risk for many

derivatives vary by both the type of product and the type of risk being measured.

Table 1: Top 10 Foreign Country

Lending Exposures for U.S. Banks as of

June 30, 1998
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Although most of their lending was in developed countries, large U.S.

banks also had exposures to organizations in various emerging market

countries. As shown in table 1, exposures to organizations in Brazil ranked

among the top 10 for U.S. banks as of June 30, 1998. U.S. banks also had

lent over $16 billion to Mexico and had exposures to other emerging

market countries in Latin America and the Caribbean totaling about $31

billion. U.S. banks’ lending exposures to Asian countries, excluding Japan,

were about $41 billion and to Eastern Europe were about $11 billion.

U.S. entities are also active in securities investing internationally. As of

year-end 1997, U.S. entities held foreign financial stocks or bonds worth

about $1.45 trillion, according to data compiled by the U.S. Bureau of

Economic Analysis. However, SEC officials told us that only about 12

securities firms engage in substantial international activities. Other entities

active in investing in other countries include U.S. mutual fund

organizations. According to information compiled by Morningstar, Inc.,

U.S. mutual funds’ foreign equity investments were also concentrated in

the major European markets and Japan (see table 2).

Dollars in millions

Country Investment value

United Kingdom $69,958

France 36,975

Netherlands 34,073

Japan 33,377

Germany 25,960

Canada 22,429

Switzerland 18,990

Italy 15,181

Sweden 14,689

Finland 12,474

Total $284,106

Source: Morningstar, Inc.

Equity investments by U.S. mutual funds outside of the largest countries

generally represented a much smaller portion of the mutual funds’ total

foreign activity. According to the data compiled by Morningstar, Inc.,

investments in markets outside of the largest countries accounted for only

25 percent of the mutual funds’ total foreign investments.

Table 2: Top 10 Foreign Country U.S.

Mutual Fund Equity Investments as of

January 1999
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U.S. financial regulators have determined that large U.S. financial

institutions are assessing the Year 2000 readiness of their key financial

relationships. Bank regulators required all U.S. banks to complete

assessments of their internal exposures, including international exposures,

by September 30, 1998. Bank regulators told us that their most recent

examinations showed that large U.S. banks had adequately completed

these assessments. SEC officials told us that large U.S. securities firms

have reported that they are also gathering information about the Year 2000

readiness of organizations in which they have key financial exposures,

including international exposures.

At the large U.S. banks and securities firms we contacted, representatives

of these institutions described (1) the progress they had made in readying

their own systems to process Year 2000 dates and (2) the actions they had

taken to assess their international exposures. Officials at each of the seven

institutions we contacted told us that the work and testing needed to make

nearly all of their systems ready for 2000 was completed by the end of

1998. The securities affiliates of six of these institutions participated in a

securities industry test in July 1998, which required them to have part of

their systems Year 2000 compliant by that date.

Officials at these institutions said they also have incorporated into their

overall Year 2000 programs assessments of the readiness of key domestic

and international customers, business partners, and their counterparties in

financial transactions. The officials said they had detailed programs to

both prioritize and assess the readiness of their key suppliers, electronic

linkages, business partners, and customers. In most cases, they described

using questionnaires to make these assessments. The officials also said

they were sending teams to make on-site visits and to personally review

the Year 2000 programs of the entities that were their highest priority

exposures. For example, representatives of one of the financial institutions

we contacted told us that they had determined that, of the over 15,000

relationships the firm had worldwide, 4,000 were deemed to be critical to

its operations. They said they prioritized these relationships using various

factors, including the extent of business the firm did with each

organization.

The firm identified about 450 domestic and foreign organizations that it

considered most critical to its operations, which included about 200

providers of information technology and infrastructure services and about

250 financial institutions. To assess the readiness of these organizations,

officials at this firm told us that they sent survey to the organizations and

were conducting on-site visits during which they were attempting to

Large U.S. Financial

Institutions Are Assessing

the Readiness of Their Key

International Financial

Relationships
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review these organizations’ Year 2000 project plans. The officials said they

also were holding discussions with the organizations’ staff on at least 10

areas of concern, such as management involvement and testing

procedures.

Officials of the U.S. financial institutions we contacted said that

contingency planning would be the primary focus of their Year 2000 efforts

in 1999, because they have generally completed system remediation and

are continuing with testing efforts. Among the efforts that officials at these

institutions described were those designed to minimize disruptions to their

businesses operations arising from problems encountered by their own

institutions, their business partners, or infrastructure providers. Such steps

included having alternate power or telecommunication sources or

arranging to conduct financial transactions with more than one institution

in other countries in the event that their normal partner experienced Year

2000 problems.

Representatives of the U.S. financial institutions we contacted said they

planned to use the results of their assessments of outside organizations in

making business decisions regarding whether they should maintain the

same levels of exposure or activity with these organizations. Most of these

financial institutions expected their main foreign counterparts to be ready

and did not anticipate having to alter large numbers of business

relationships for Year 2000 readiness reasons. We talked to four

representatives of financial institutions about their firms’ foreign financial

relationships. The representatives said that they chose to do business in

different foreign markets because they believed these relationships and

investments were sound. The representatives also said that they were

determined to remain committed to these investments until the business

fundamentals in these countries were altered.

The Year 2000 readiness of the organizations in some countries, including

those considered to have made less progress in their preparations than

U.S. financial firms, is less likely to have a serious impact on the U.S. firms

because of recent events in world markets. For example, officials in Russia

have already acknowledged that they lack the resources to adequately

address Year 2000 problems. However, according to officials of most of the

U.S. financial institutions we contacted, exposures in markets such as

Russia, Eastern Europe, and Southeast Asia have already been

substantially reduced due to the market turmoil that has occurred in those

regions since 1997. According to Morningstar, Inc., data, U.S. mutual fund

investments in Russia totaled just $181 million in January 1999, or less than

1 percent of all such funds’ foreign investments. Banks were more exposed

Large Financial Institutions

We Contacted Anticipated a

Limited Year 2000 Impact

on Their Activities
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to Russian organizations, with over $6 billion in loans outstanding, but this

was just 1.3 percent of U.S. banks’ total foreign lending exposure in 1998.

Officials from most of the U.S. financial institutions we contacted said

that, in their view, the impact of Year 2000 disruptions in other countries’

markets was not expected to be severe. For example, they said that their

firms were advising clients with investments in countries that were more

likely to experience Year 2000-related disruptions to, at worst, be prepared

for periods of difficulty with payments and settlements in these regions

ranging from a few hours to a few weeks. Because these officials believe

the duration of any Year 2000-related problems will likely be short, they

are advising their clients not to alter their investments solely on the basis

of Year 2000-related concerns. Instead, they suggested balancing the

impact of these potential, temporary disruptions against the merits of the

investments they have made in these regions.

One of the large U.S. securities firms we contacted issued a research

report on Year 2000 readiness in January 1999.6

 The report stated that,

although significant failures by foreign organizations to make payments or

to deliver securities could conceivably disrupt segments of the U.S.

financial system, the U.S., European, and other monetary authorities have

the capability to cover any resulting liquidity shortfalls. Also, a research

analysis done by another of the securities firms we contacted examined

the Year 2000 readiness of various industrial sectors in the United States

and at least 19 other countries.7

 This report noted that Year 2000 problems

would probably not cause a major disaster, but that the problems had

more potential for disruption in emerging markets. Nevertheless, the

report stated that companies will likely cope with Year 2000 problems in

the same ways they do during power outages or other disruptions of

telecommunications or computer services.

U.S. bank and securities regulators are assessing the international risks

faced by the entities they oversee. These regulators have approached

oversight of Year 2000 issues on the basis of their overall regulatory

mandate. The approach taken by bank regulators focuses on their

regulatory mandate to protect the safety and soundness of the banking

system. Without direct authority to regulate the foreign affiliates of U.S.

broker-dealers, SEC has also assessed the international risks that Year

2000 problems may pose to the securities market participants it regulates.

 6

Getting Over the Bug: An Assessment of the Y2K Preparedness of the S&P 500 Companies, Morgan

Stanley Dean Witter (New York, NY: Jan. 1999).

7

Y2K: Implications for Investors, Merrill Lynch (New York, NY: June 1998).

U.S. Banking and

Securities Regulators

Are Assessing

International Year 2000

Risks
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U.S. bank regulators view the Year 2000 problem, including the risks posed

by banks’ international activities, as potentially threatening the safety and

soundness of individual institutions. The regulators have jointly issued at

least three sets of guidance that address the risks posed to banks from

potential Year 2000 problems experienced by their customers, suppliers,

and other business partners, including those in other countries. In a March

1998 statement, bank regulators required banks to assess the Year 2000

readiness of both their domestic and international customers, including

organizations that borrow from, provide funds to, or conduct capital

market transactions with their institutions.8

 The regulators required banks

to have these assessments substantially completed by September 30, 1998.

Since 1997, bank regulators have reported that they conducted at least one

examination of all U.S.-chartered banks, including the foreign branches of

overseas banks. On the basis of these reviews, bank regulators rated the

Year 2000 progress of about 96 percent of the institutions examined as

satisfactory. The regulators started a second round of examinations in

September 1998. This round is to focus primarily on testing, contingency

planning, and efforts to assess the readiness of external parties. According

to representatives of the Federal Reserve and the OCC, which oversee

banks with international operations, large banks appear to have conducted

their customer assessments adequately, but some smaller institutions had

failed to conduct assessments of all the organizations whose Year 2000

readiness could affect their banks.

SEC is charged with protecting U.S. investors and ensuring fair and orderly

markets, but SEC does not have the authority to regulate the international

activities of U.S. securities firms that are done outside of the regulated

broker-dealer.9

 However, SEC has assessed the readiness of U.S. securities

markets and the organizations that participate in them, including any

relevant international activities of these organizations. SEC has conducted

examinations of securities markets, broker-dealers, investment companies,

investment advisers, and other organizations they regulate as part of their

Year 2000 oversight effort. In addition, since 1990, SEC has had the

authority to assess the degree of risk that the securities firms’ unregulated

 

8

Interagency Statement: Guidance Concerning the Year 2000 Impact on Customers, Federal Financial

Institutions Examination Council (Washington, D.C.: Mar. 17, 1998).

9

Large U.S. securities firms generally consist of many legal entities under a parent or holding company

structure. Legal entities that conduct securities activities with U.S. customers must register with SEC

as broker-dealers and subject themselves to regulation by that agency.

U.S. Bank Regulators Are

Concerned About Bank

Safety and Soundness

Securities Regulators Lack

Direct Authority Over

International Issues
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activities pose to the regulated entity.10 Under this authority, SEC requires

securities firms’ regulated broker-dealer affiliates to report on the

exposures of their foreign affiliates and holding companies. Finally, SEC

requires the entities it regulates to provide supplemental reporting on their

Year 2000 efforts.

SEC officials have concluded that the Year 2000 risks posed by U.S.

securities firms’ international activities are not significant. They said that

the foreign exposures of U.S. securities firms are relatively modest

compared to their U.S. operations. Moreover, the U.S. securities firms’

most significant international exposures were largely concentrated in their

U.K. affiliates. These firms conduct considerable over-the-counter

derivatives activities in the United Kingdom, although derivatives

exposures may arise from business being conducted with entities in other

countries. SEC officials told us that U.K. regulators were active in

overseeing these firms’ operations.

Since the end of 1998, SEC has required the entities it regulates to file

reports discussing their efforts to address Year 2000 problems.11 In these

reports, organizations are to provide additional information on their Year

2000 readiness efforts beyond that required in other statements filed with

SEC. Organizations required to submit these reports include all but the

smallest securities firms’ regulated broker-dealer affiliates and investment

advisers with over $25 million under management or that provide advice to

an investment company registered under the Investment Company Act of

1940. The primary purpose of these reports is to provide SEC with more

specific information on these entities’ actions to address their Year 2000

problem. In the reports, the firms are required to describe their plans,

including the resources they have committed, their progress against the

various milestones in the process, and their contingency planning efforts.

For broker-dealers, the first reports were required to be filed no later than

August 1998 and are to be filed again no later than April 1999. In addition,

the regulated entities are also to submit a separate report completed by the

firms’ external auditors that serves as an independent verification of the

accuracy of the firms’ April 1999 submission. These reports are to be made

publicly available, and SEC has posted the August 1998 submissions on its

Web site.

 

10The Market Reform Act of 1990 authorized SEC to collect information from regulated broker-dealer

about the financial condition of their holding companies, foreign affiliates, and other entities that are

reasonably likely to have a material impact on the financial and operational condition of the firm.

11See 17 C.F.R. §240.17a-5, 17 C.F.R. §275.204-5, and 17 C.F.R. §240.17Ad-18 (1998).
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These reports also provide SEC with some information on the extent to

which the entities it regulates are addressing the risks posed by the Year

2000 readiness of external organizations, including those in other

countries. One section of the report seeks information on the activities

firms have undertaken to assess the readiness of any third parties that

provide mission-critical systems, including clearing firms, vendors, service

providers, counterparties, and others. In their submissions, the brokerdealer affiliates are to identify the number of the entities they rely upon,

whether they have contacted these entities regarding their Year 2000

readiness, and whether their contingency plans address the potential

failure by third parties to be ready. Although these reports were

technically just required to be filed by the securities firms’ broker-dealer

affiliates subject to SEC regulation, SEC officials told us that the firms

submitting these reports have generally provided information that

addresses the global operations of their firms outside of the regulated U.S.

entity, when relevant.

We reviewed the August 1998 submissions by 11 of the largest U.S.

securities firms. All of these broker-dealer affiliates’ reports indicated that

they covered the firms’ global operations and activities with foreign

clients. The officials said that they would use the information gathered in

these reports to identify entities that they may select for an on-site

examination concerning their Year 2000 preparations. SEC officials told us

that, as of March 1999, no organizations had been selected specifically for

their international operations. However, they said that they have begun

developing plans for examining the international operations of selected

firms, particularly for those firms active in over-the-counter derivatives.

Like their counterparts in the United States, officials of the foreign

financial institutions we visited said they were also working to ready their

systems for the date change in 2000, although their progress generally

lagged those of U.S. institutions. Financial institutions in the countries we

visited were also attempting to assess the Year 2000 readiness of their

customers and the organizations with which they do business. Financial

regulators in these countries told us that they were also assessing the Year

2000 efforts of the entities they oversee, although their activities varied

and appeared less extensive than efforts made by U.S. regulators. Other

key participants in international financial markets include organizations

that provide market support services, such as financial message

transmission and clearing and settlement activities. The market support

organizations we contacted were also readying their systems for 2000.

Finally, two international organizations, including one focusing on

regulatory issues and another focusing on issues of concern to financial

Foreign Financial

Institutions and

Regulators We Visited

Were Also Addressing

the Year 2000 Problem
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Page 14 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

institutions, provided guidance and other assistance to financial regulators

and institutions attempting to address the Year 2000 problem.

According to external assessments by consulting groups, regulators, and

others, foreign financial institutions have generally made less progress in

addressing the Year 2000 problem than have institutions in the United

States. Officials of financial institutions in the countries we visited said

they were readying their systems for the date change in 2000, but not all of

these institutions expected to complete their work in the same time frame

expected of U.S. institutions. One reason these institutions’ time frames

are different is because many institutions, particularly those in France and

Germany, had placed a higher priority on modifying their systems for the

introduction of the new European common currency, called the euro, in

January 1999.12

To prepare for the date change in 2000, U.S. regulators expected banks and

securities firms to have completed both internal systems modifications and

testing by December 1998. We obtained Year 2000 readiness information

from seven large foreign financial institutions. Officials from two Swiss

institutions and one U.K. bank said that they had mostly completed their

internal systems modifications and testing by December 1998. Officials

from a German institution we visited said that they had also completed

their internal systems modifications by December 1998, but that they had

completed the testing of only about 40 percent of their systems by

February 1999. Officials from one of the French institutions we contacted

expected to complete systems modification and testing by the first quarter

of 1999, and officials of the remaining two institutions—including one

French and one U.K. bank—expected to be finished by the second quarter

of 1999.

Although their work on the euro has delayed their Year 2000 efforts,

officials representing financial institutions in France and Germany

indicated that their euro efforts would help them complete their Year 2000

work on time. For example, these officials said they already had detailed

inventories of their information systems and applications, existing test

facilities, and project management teams with experience and personnel

that could be used for completing their Year 2000 programs. However,

some officials of financial institutions and regulators in the United States

 

12On January 4, 1999, 11 member countries of the European Union, including Austria, Belgium, Finland,

France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal, and Spain, took a major step

toward merging their national currencies into a single currency, the euro. From this date, the

currencies of these countries can be exchanged for a fixed amount of euros and financial transactions

can be conducted in euros. Eventually, the euro is to replace the currencies of these nations.

Foreign Financial

Institutions We Visited Were

Readying Their Systems and

Assessing Readiness of

External Parties
B-281294

Page 15 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

and United Kingdom expressed concerns over whether institutions in

countries that had focused on the euro conversion would be ready for the

date change. These officials said they expected the larger financial firms

would have sufficient resources to address the euro conversion and Year

2000 efforts simultaneously. However, they said they were concerned that

small to medium-sized firms would not be able to adequately complete

both projects in such short time frames.

Like financial institutions in the United States, officials in the foreign

financial institutions we contacted said they also were assessing the Year

2000 readiness of their vendors, electronic linkages, business partners, and

customers. These officials said they were also generally using surveys to

assess external entities’ readiness and were conducting selected on-site

visits to review such organizations’ Year 2000 programs in more detail.

The financial regulators in the foreign countries we contacted said that

they had taken steps to assess the Year 2000 efforts of the entities they

oversee. However, their oversight program approaches varied across

countries and, in some cases, appeared to be less extensive than those

made by U.S. financial regulators.

The guidance issued by foreign regulators and regulatory requirements for

disclosing the readiness of foreign financial institutions appeared to be

less extensive than those mandated for U.S. financial institutions. In the

United States, bank regulators issued at least 11 statements to provide

guidance for banks on a variety of topics to help them prepare for the Year

2000. In contrast, foreign regulators in the countries we had visited had

issued guidance to the institutions they oversee only once or twice, and

this guidance covered a narrower range of topics than the U.S. regulators’

guidance. Regulators and financial institution officials in several of the

countries we visited indicated that the U.S. regulators’ guidance had

proved helpful.

For firms operating in these countries, the requirements regarding publicly

disclosing their Year 2000 efforts also differed. In March 1998, the U.K.

accounting standards body required firms to discuss the following in

public financial statements: Year 2000 risks, efforts to address those risks,

and the costs of those efforts. In France, the securities regulatory body

mandated that firms issuing publicly available securities make similar

disclosures. Germany required no such disclosures, but an official with a

German bank indicated that financial institutions were making disclosures

for competitive reasons. Financial regulators in Japan had issued a

checklist addressing Year 2000 issues to financial institutions in their

Foreign Financial

Regulators Had Some Year

2000 Oversight Programs

That Appeared Less

Extensive Than Those of

U.S. Financial Regulators
B-281294

Page 16 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

country, and regulatory examiners reviewing firms’ activities also were

using this document. Regulators in Korea had issued guidance on Year

2000 issues, but examiners in that country had also reviewed guidance

issued by and received training from U.S. banking regulators.

Foreign regulators had also placed less emphasis than U.S. regulators on

having the financial institutions they oversee assess the Year 2000

readiness of their key financial relationships. U.S. bank regulators required

the institutions they oversee to complete assessments of the readiness of

their key financial relationships by September 30, 1998. U.S. securities

regulators required U.S. securities firms to report on their own readiness

and the extent to which their contingency planning assessed the readiness

of external organizations. In general, regulators in France, Germany,

Japan, Korea, and the United Kingdom had not specifically directed their

financial institutions to make assessments of the Year 2000 readiness of

their customers or other entities with which they have critical financial

relationships. However, regulators in France and Japan had included

questions relating to third-party or customer assessments in the surveys

they had administered to financial institutions. In Germany, banks had

worked through industry associations to develop a standardized

questionnaire for use in obtaining information on customer readiness.

Korean regulators had recommended that banks take the Year 2000

readiness of their customers into account when making credit decisions.

Approaches to examinations also varied in these countries. In Germany

and the United Kingdom, external auditors rather than regulatory bodies

usually conduct examinations of banks. Financial regulators in both of

these countries said they have tasked the external auditors to address Year

2000 issues as part of the reviews they conduct of banks. Financial

regulators in the United Kingdom also said they were making their own

limited visits to banks to discuss Year 2000 issues and have incorporated

Year 2000-related questions into their regular examinations of securities

firms. In France, financial regulators said they were conducting specific

Year 2000 examinations of all banks and securities firms. In Japan and

Korea, multiple regulatory bodies said they were involved in conducting

periodic and ad hoc reviews of financial institutions’ Year 2000 efforts.
B-281294

Page 17 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

Conducting international financial transactions frequently requires the

involvement of market support organizations, which perform clearance

and settlement or other necessary services. For example, many financial

institutions use the services of the Society for Worldwide Interbank

Financial Telecommunication (SWIFT) in Belgium, which provides a

proprietary network for transmitting messages pertaining to financial

transactions. SWIFT transmits information among as many as 7,000

institutions in 160 different countries and processes messages relating to

an average of $3 trillion per day. Two other key support organizations

based in Europe are Euroclear in Belgium and Cedel Bank in Luxembourg.

These organizations perform clearance and settlement services on behalf

of many internationally active financial institutions, with Euroclear having

about 2,200 participants in 70 countries and Cedel Bank providing services

to customers in 80 countries. Because of the role they play in international

finance, these organizations’ ability to successfully ready their systems for

the date change in 2000 is important.

Officials from SWIFT, Euroclear, and Cedel Bank told us that they had

completed most of their internal systems modifications and testing by

December 1998. These officials said that they have testing programs under

way with the financial institutions they service. These organizations are

also scheduled to participate in a June 1999 global test of worldwide

central banks and payment systems that is being sponsored by the New

York Clearing House Association. This association operates an electronic

payments system for international dollar payments.

Two organizations have taken the lead in addressing Year 2000 issues from

the perspective of how these issues affect financial institutions and

markets internationally. The Global 2000 Coordinating Group is a private

sector organization comprising many of the world’s largest banks and

securities firms and is leading efforts to ensure the readiness of the global

financial system. This group was formed in April 1998 with the mission of

identifying and providing resources to areas where coordinated initiatives

would assist the financial community in improving its readiness for the

date change in 2000. As of January 1999, the group had participants from

244 institutions in 53 countries.

To assist financial institutions in addressing the Year 2000 problem, the

Global 2000 Coordinating Group has encouraged its members to selfdisclose the status of their readiness efforts and has developed a template

to standardize the presentation of this information. The group has also

developed country assessments that attempt to assess the level of

readiness of the financial sector and infrastructure providers such as

Major International Market

Support Organizations

Report Completing

Modifications for Year 2000

Two International

Organizations Are Active in

Ensuring the Readiness of

Global Financial Markets

and Institutions
B-281294

Page 18 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

telecommunications, power, water, and government. Although not being

released publicly, these country assessments are being shared with

selected public and private sector officials in their respective countries.

The group has also published guidance on contingency planning and is

attempting to compile a comprehensive list of testing activities being

conducted globally.

The Joint Year 2000 Council is the other organization actively addressing

international Year 2000 issues. The council was formed in April 1998 and

comprises senior representatives of the Basle Committee on Banking

Supervision, the Committee on Payment and Settlement Systems, the

International Association of Insurance Supervisors, and the International

Organization of Securities Commissions. Currently, a member of the U.S.

Federal Reserve Board of Governors chairs the council. Other staff from

the U.S. banking regulators and SEC also participate in several of the

activities of the Joint 2000 Council and have also been active in other

international forums on a variety of Year 2000 concerns.

The council’s main goals have been to (1) share information on Year 2000

oversight strategies and approaches and contingency planning and (2)

serve as a focal point for other national and international Year 2000

remediation initiatives. The council has issued various sets of guidance for

financial regulators and financial institutions, including papers on testing

and procedures for assessing financial institutions. In February 1999, the

council released a series of papers on contingency planning.

Although the financial sectors in the United States and the other countries

we contacted were actively addressing the Year 2000 problem, other issues

will require continued attention from financial regulators, financial

institutions, and other organizations as 2000 approaches. The readiness of

infrastructure providers—including telecommunications, power, water,

and other services—were a concern to financial institution officials with

whom we spoke. Other areas that financial regulators and financial

institutions said they are addressing that will require continued efforts

include (1) developing mechanisms for coordinating between regulators

and other organizations during the date change period, (2) promoting

additional Year 2000 readiness disclosure by foreign organizations, and (3)

developing strategies for communicating the readiness status of the

financial sector to public. Lastly, financial institutions’ experiences as they

participate in the recent introduction of the new currency in Europe and

the results of various Year 2000 tests slated to occur around the world in

1999 will likely provide lessons learned and indications of the prospects

for a successful Year 2000 transition.

Various Issues Require

Continued Attention by

the Financial Industry

and Other

Organizations
B-281294

Page 19 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

The Year 2000 readiness status of infrastructure providers in foreign

markets, such as telecommunications firms and power providers, is a

major concern to the U.S. and foreign financial institutions operating

internationally that we contacted. Regardless of their own readiness and

contingency planning, financial markets and the firms participating in

them will not likely be able to continue operating after the date change

unless the various infrastructure providers are also ready. Regulatory and

financial institution officials in the countries we visited expressed several

concerns about the readiness of infrastructure providers in their own and

other countries.

First, officials indicated that they did not have adequate information about

the readiness status of many infrastructure providers in other countries.

This lack of information contributed to uncertainty about the readiness

status of these providers. Many of the officials we contacted said that the

providers should make more information publicly available to reduce this

uncertainty. The Joint Year 2000 Council has attempted to address the

infrastructure readiness issue, noting in its October 1998 bulletin that the

scarcity of information available from operators of key infrastructure

components has inhibited prudent planning by users of these services.13

The council also noted that in many areas, no existing public sector body

has been directed to require action by providers or the oversight structure

is too disjointed to allow one authority to lead such an effort.

Another concern of financial market officials regarding infrastructure is

that Year 2000 problems in one country’s infrastructure could create

problems for other countries because of cross-border linkages. In a

September 1998 report, the Organization for Economic Cooperation and

Development noted that, along with international financial transactions,

sectors such as transport, telecommunications, power provision, and other

activities depend on cross-border interconnections that could be

vulnerable to Year 2000 breakdowns.14 In addition, regulatory and financial

institution officials told us that they were concerned that inadequate

attention was being paid to cross-border dependencies among

infrastructure providers. For instance, officials indicated that some

German power providers rely on natural gas from Russia, a country that

has already acknowledged lacking resources to address Year 2000 issues.

Officials expressed concerns that no organization appears to have taken

the lead to address this and other such cross-border dependencies.

 13Council Bulletin Issue Two, Joint Year 2000 Council (Basle, Switzerland: Oct. 6, 1998).

14The Year 2000 Problem: Impacts and Actions, Organization for Economic Cooperation and

Development (Paris, France: Sept. 30, 1998).

Readiness of Foreign

Infrastructure Is Important

to the Financial Sector
B-281294

Page 20 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

An official with the Global 2000 Coordinating Group noted another

example of these dependencies, explaining that Swiss power companies

supply power to other countries during peak periods. However, over 1,000

power suppliers exist in Switzerland and determining what actions these

organizations have taken to ready their systems for the date change has

been difficult. Because power supplies are shared among neighboring

countries, in December 1998, the European Commission urged that

relevant authorities in each country closely monitor progress in this sector,

exchange information with their counterparts, and publicly disclose such

information.15 The commission also urged that such information be shared

about air, rail, maritime, and road transport sectors because it also found

that little cross-border coordination and information exchange has

occurred in these areas.

Various organizations are addressing infrastructure issues within

individual countries and internationally. As we previously recommended,16

the banking regulators have been meeting to develop contingency plans

addressing domestic and international infrastructure issues. According to

an OCC official, a Federal Financial Institutions Examination Council

(FFIEC)17 working group on contingency planning meets monthly and has

various subgroups addressing specific issues including international

payment systems and the readiness of major institutions in key markets.

This official also told us that U.S. banking regulators obtain information

from their counterparts in other countries on the readiness of

infrastructure providers in those countries and emphasize to these

counterparts the importance of having more information publicly

disclosed on the status of key infrastructure sectors.

In addition to the financial regulators’ efforts, the President’s Council on

Year 2000 Conversion has working groups addressing issues relating to

various infrastructure sectors in the United States and has also taken

actions related to cross-border concerns. For example, national Year 2000

coordinators from the United States and as many as 120 countries

discussed infrastructure issues at a meeting held at the United Nations in

December 1998. Officials of the President’s Council have also met with

 

15Communication from the Commission: How the European Union is Tackling the Year 2000 Computer

Problem, European Commission (Brussels, Belgium: Dec. 2, 1998).

16Year 2000 Computing Crisis: Federal Depository Institution Regulators Are Making Progress, But

Challenges Remain (GAO/T-AIMD-98-305; Sept. 17, 1998).

17This body is an interagency forum for the Federal Reserve, OCC, the Federal Deposit Insurance

Corporation, the National Credit Union Administration, and the Office of Thrift Supervision and

prescribes uniform principles, standards, and report forms for these agencies.
B-281294

Page 21 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

their counterparts in other countries to discuss cross-border infrastructure

issues. Internationally, individual infrastructure sectors also have taken

steps to address Year 2000 issues. For example, the International

Telecommunications Union has attempted to gather readiness information

and coordinate cross-border testing of telecommunications services.

Other important issues, including coordination, disclosure, and

communication issues, require attention by U.S. regulators, financial

institution officials, and others as the date change in 2000 approaches. For

example, regulators and financial institution officials with whom we spoke

said that regulators will have to be involved in creating a mechanism for

managing information collection shortly before and immediately after the

date change. The Joint Year 2000 Council stated, in February 1999, that the

accurate exchange of information in late 1999 and the beginning of 2000

between the public, private, and financial market sectors both

domestically and across borders would be vital to a smooth transition. 18 As

a result, the council encouraged financial market authorities to establish

communication channels that could be used before, during, and after the

date change. The council also noted that authorities could consider

establishing a centralized location for collecting and exchanging

information among financial regulators, other authorities, and financial

market participants. Such information centers may be useful in

coordinating contingency plans in the event of disruptions and failures and

may reduce the information demands on financial institutions, which

would allow them to concentrate their resources on fixing problems that

may occur.

Some of the financial institution officials we contacted also called for the

establishment of such a coordination mechanism. These officials said that

their main concern was the need for a centralized mechanism for gathering

and disseminating accurate information about events during the date

change to avoid panic. They suggested that government regulators act in

this capacity because they generally have access to government

counterparts in other countries and could provide more complete and

accurate information to the markets. For instance, a representative of one

financial institution told us it would be good to have some organization in

place that could be contacted in the event institutions were having

difficulty with a telephone system in one of the foreign markets in which

they conduct business. A Federal Reserve official noted that the U.S.

banking regulators were considering how to facilitate this type of

 

18Planning by Financial Market Authorities for Year 2000 Contingencies, Joint Year 2000 Council (Basle,

Switzerland: Feb. 1999).

Coordination, Disclosure,

and Communication Are

Among Issues Requiring

Attention as 2000

Approaches
B-281294

Page 22 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

communication and were discussing it as part of the contingency planning

efforts with other regulators and private-sector financial officials. An OCC

official explained that each of the banking regulators was developing its

own plans for having coordination mechanisms in place, and that

eventually they plan to integrate these efforts through the FFIEC

contingency planning working group. As part of this, the banking

regulators were also developing a list of contacts among the staff of

financial regulators in other countries from whom information about the

status of the date change outside of the United States could be readily

obtained.

Another issue that should concern U.S. and foreign regulators before 2000

arrives involves the need for additional disclosure by organizations in

other countries of their Year 2000 readiness status. Many of the financial

institution officials we contacted indicated that more information about

readiness status should be publicly disclosed by entities in other countries.

Because of the need to disclose information to other countries that have

an economic interest in their member nations, the European Commission

noted in a December 1998 report that member state governments should

accelerate or establish mechanisms for coordinating and monitoring Year

2000 readiness.19 The commission also noted that it is better to have

information that problems exist and are being addressed than to have

uncertainty created by a total lack of information. On January 29, 1999, the

Global 2000 Coordinating Group called for (1) financial firms to redouble

their efforts to disclose their Year 2000 readiness and (2) governments to

provide more detailed public disclosure of the readiness of sectors that are

critical to the safe functioning of the financial industry. Banking regulatory

officials told us that, whenever possible, they discuss with foreign

regulatory organizations the need for more public disclosure on the Year

2000 readiness status of financial and other organizations. An OCC official

said that the December 1998 issuance by the Joint Year 2000 Council20

 on

information sharing, which encourages foreign regulatory and other

organizations to disclose more information, was an example of how U.S.

regulators were supporting this issue.

A final issue concerning regulators before the Year 2000 date change

occurs involves the need to communicate accurate information about the

readiness status of the financial sectors to the public. In the December

 

19Communication From the Commission: How the European Union is Tackling the Year 2000 Computer

Problem, European Commission (Brussels, Belgium: Dec. 2, 1998).

20Year 2000 Information Sharing and Disclosure, Joint Year 2000 Council (Basle, Switzerland: Dec.

1998).
B-281294

Page 23 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

1998 paper on information sharing, the Joint Year 2000 Council stated that

financial market authorities should set an example by implementing a

comprehensive information-sharing program that includes communicating

with the general public. The council noted that promoting and preserving

public confidence requires strategic coordination. It stated that financial

market authorities should develop communication plans to reinforce, as

appropriate, the public’s confidence in the financial system. In an

additional issuance in February 1999, the council stated that, by providing

periodic status reports on the readiness of the financial sector, authorities

could shape the perceptions and expectations of the public and minimize

irrational and potentially destabilizing behavior.21

U.S. and foreign financial institution and regulatory officials told us that

regulators and governments would have to inform the public about the

financial sectors’ Year 2000 status. The U.S. regulatory officials we

contacted acknowledged that this need existed, and that they intended to

address this issue in the future.

Various upcoming events may indicate the potential success of Year 2000

remediation efforts. Many industry and regulatory officials told us that the

degree of success experienced during the euro conversion would provide

some indication of how well financial institutions may be able to manage

the Year 2000 date change. Like the Year 2000 problem, the euro

conversion required financial institutions to identify, modify, and test

internal computer systems to ensure accurate processing.

According to U.S. banking officials, the euro conversion in early January

1999 was mostly successful. However, they said some institutions did

experience problems in processing transactions. In addition, adequate

information about firms’ operating status during the conversion was not

always available. In particular, these officials said that organizations that

experienced processing difficulties were reluctant to report any problems

they had during the conversion. Financial institutions involved in the

conversion had contracted with a private-sector information provider to

arrange for dedicated display space on its proprietary network as a means

for reporting and sharing information about the status of the financial

institutions’ operations. However, when problems began occurring, the

institutions involved did not report them using this network. They noted

that the failure to disseminate information about problems being

experienced by some institutions could have created more serious

 

21Planning by Financial Market Authorities for Year 2000 Contingencies, Joint Year 2000 Council (Basle,

Switzerland: Feb. 1999).

Events in 1999 May Indicate

the Potential Success of

Year 2000 Efforts of

Financial Market

Participants
B-281294

Page 24 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

problems. However, many firms continued transmitting their portions of

payments due despite a lack of information about the operating status of

other institutions or assurance that they would receive the corresponding

payments from other institutions.

A U.S. banking official said that, although the institutions involved handled

the problems that did arise during the euro conversion, the problems could

have been more serious if the U.S. institutions had not continued to make

their payments when problems arose. A U.S. banking regulatory official

said that the regulators and financial institutions should take action to

decrease the likelihood that similar information-sharing problems will

occur during the Year 2000 date change.

The results of testing by markets and institutions around the world in early

to mid-1999 should provide another indicator of the international financial

markets’ Year 2000 readiness. Many major markets are to conduct tests of

their Year 2000 readiness in 1999 and several tests involving multiple firms

are also to be conducted, including the U.S. securities industrywide test

that began in March 1999 and a global payments system test planned for

June 1999. If successful, these tests should provide more assurances that

financial markets and financial institutions will be ready for the actual date

change in 2000. Although industrywide testing can demonstrate the

coordinated and smooth functioning of U.S. financial markets, some

officials cautioned that the results of tests such as these should not be

considered definitive proof that participating financial institutions are

completely ready for 2000. Large financial institutions may participate in a

wide variety of financial activities, and all of their systems would not

necessarily be tested in any one industrywide test. For example, officials

of two organizations, which conduct a wide range of financial activities in

the United States and other countries, said that less than 10 percent of

their total systems were used during the U.S. securities industry test in

July 1998.

We obtained oral comments on a draft of this report from staff of the

Board of Governors of the Federal Reserve System and SEC and written

comments from OCC (see app. I). Each of the agencies that commented on

this report said that it was an accurate summary of the activities that their

organizations and the financial institutions they oversee are undertaking to

address international Year 2000 risks. They also agreed that the issues we

highlighted as requiring their continued attention were important. OCC’s

written comments are reprinted in appendix I. SEC staff also suggested

some technical changes that we incorporated where appropriate.

Agency Comments and

Our Evaluation
B-281294

Page 25 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

As agreed with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this report until 10 days from its

issue date. At that time, we will send copies of this report to

Representative Thomas Bliley, Chairman, House Committee on

Commerce; Senator Robert F. Bennett, Chairman, Senate Special

Committee on the Year 2000 Technology Problem; The Honorable Arthur

Levitt, Chairman, Securities and Exchange Commission; The Honorable

Alan Greenspan, Chairman, Board of Governors of the Federal Reserve

System; and The Honorable John D. Hawke, Jr., Comptroller of the

Currency, Office of the Comptroller of the Currency. We will also make

copies available to others upon request.

Please contact me on (202) 512-8678 if you or your staff have any

questions. Major contributors to this report are listed in appendix II.

Sincerely yours,

Richard J. Hillman

Associate Director, Financial

 Institutions and Markets Issues
Page 26 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

Contents

1 Letter

Appendix I 28

Comments From the

Office of the

Comptroller of the

Currency

Appendix II 30

Major Contributors to

This Report

Table 1: Top 10 Foreign Country Lending Exposures for

U.S. Banks as of June 30, 1998

6

Table 2: Top 10 Foreign Country U.S. Mutual Fund Equity

Investments as of January 1999

7

Tables

Abbreviations

FFIEC Federal Financial Institutions Examination Council

OCC Office of the Comptroller of the Currency

SEC Securities and Exchange Commission

SWIFT Society for Worldwide Interbank Financial Telecommunication
Page 27 GAO/GGD-99-62 Financial Institution and Regulatory Efforts
Appendix I

Comments From the Office of the

Comptroller of the Currency

Page 28 GAO/GGD-99-62 Financial Institution and Regulatory Efforts
Appendix I

Comments From the Office of the Comptroller of the Currency

Page 29 GAO/GGD-99-62 Financial Institution and Regulatory Efforts
Appendix II

Major Contributors to This Report

Page 30 GAO/GGD-99-62 Financial Institution and Regulatory Efforts

Michael Burnett, Assistant Director

Cody Goebel, Assistant Director

Jean Paul Reveyoso, Senior Evaluator

General Government

Division
Page 31 GAO/GGD-99-62 Financial Institution and Regulatory Efforts
Page 32 GAO/GGD-99-62 Financial Institution and Regulatory Efforts
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