of year 2000 communications centers throughout the country, and perhaps internationally. primarily, such centers would facilitate the exchange of up - to - date information on developing problems and issues among participants and enhance the development of consensus, when necessary, to coordinate timely responses to problems. the federal reserve is assisting in the government ’ s coordination of the year 2000 effort within the financial industry by participating in the financial institutions sector group of the president ’ s council on year 2000 conversion. a senior board official who chairs this sector group has been working with representatives of government financial organizations, including the federal banking agencies, the department of the treasury, the securities and exchange commission, and other agencies responsible for various financial intermediaries, to assess the year 2000 readiness of the financial industry and formulate strategies for addressing interagency year 2000 issues. bank supervision i would now like to turn to our industry oversight activities. the federal reserve met its goal, set in may 1997, of conducting a year 2000 supervisory review of all banks subject to our supervisory authority by june 1998. this public commitment and visible effort did much to stimulate industry action on the year 2000 issue. we have also established ties and are providing significant support to numerous public and private groups, both domestic and international, that are addressing the year 2000 readiness of their respective constituencies. as part of our outreach program, we continually emphasize the critical significance of ensuring that computer systems and applications are year 2000 compliant and the complexity of the managerial and technological challenges that the required effort presents for all enterprises. for entities such as financial institutions that rely heavily on computers to provide financial services to customers, achieving year 2000 compliance in mission - critical systems is essential for maintaining the quality and continuity of customer services. while bank supervisors can provide guidance, encouragement, and strong formal and informal supervisory incentives to the banking industry to address this challenge, it is important to recognize that we cannot be ultimately responsible for ensuring or guaranteeing the year 2000 readiness and viability of the banking organizations we supervise. rather, the boards of directors and senior management of banks and other financial institutions must be responsible for ensuring that the institutions they manage are able to provide high quality and continuous services from the first day in january of the year 2000. as we have emphasized continually during the past sixteen months, this critical obligation must be among the very highest of priorities for bank management and boards of directors. policy guidance and supervisory reviews the federal reserve continues to work closely with the other banking agencies that comprise the federal financial institutions examination council ( ffiec ) to

mr. kelley reports on the year 2000 progress of the banking and financial services sector in the united states testimony of mr. edward w. kelley, jr., a member of the board of governors of the us federal reserve system, on the year 2000 progress of the banking and financial services sector, before the committee on banking and financial services of the us house of representatives on 17 / 9 / 98. thank you for again inviting me to appear before this committee to discuss the year 2000 issue. this problem poses a major challenge to public policy : the stakes are enormous, nothing less than the preservation of a safe and sound financial system that can continue to operate in an orderly manner when the clock rolls over at midnight on new year ’ s eve and the millennium arrives. the year 2000 problem will touch much more than just our financial systems and could temporarily have adverse effects on the performance of the overall us economy as well as the economies of many, or all, nations if not corrected. as i said last april in testimony before the senate committee on commerce, science, and transportation, some of the more adverse scenarios are not without a certain plausibility, if this challenge were being ignored. but it is not being ignored. while it is impossible today to precisely forecast the impact of this event, and the range of possibilities runs from minimal to extremely serious, an enormous amount of work is being done in anticipation of the rollover of the millennium, and i am optimistic that this work will pay off. in that spirit, let me update you on what the federal reserve has done to address the year 2000 issue. since i last testified here in november 1997, the federal reserve has met the goals that we set for ourselves. we have : • renovated our mission - critical applications and nearly completed our internal testing ; • opened our mission - critical systems to customers for testing ; • progressed significantly in our contingency planning efforts ; • implemented a policy concerning changes to our information systems ; and • concluded our initial review of all banks subject to our supervisory authority. while these accomplishments are indicative of our significant progress in addressing the year 2000 issue, much work remains. in the testing area, we are finalizing plans for concurrent testing of multiple mission - critical applications by customers. we are coordinating with the clearing house for interbank payment systems ( chips ) and the society for worldwide interbank financial telecommunications ( swift ) to provide a common test day for customers of fedwire and these two systems. we have a system - wide project