Year 2000

U.S. financial institutions actively participate in international financial markets as dealers of foreign exchange and derivative products, lenders to foreign organizations, and investors in foreign securities. Concerns have been raised that U.S. financial institutions could face significant problems in operating abroad--along with the risk of huge losses on their trading and investment activities--unless foreign markets and financial institutions have adequately prepared their computer systems for the Year 2000 problem. This report assesses the extent to which (1) large, internationally active U.S. financial institutions have been 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 that may require attention before the upcoming date change at the turn of the century.

GAO noted that: (1) 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; (2) however, the 7 large U.S. banks and securities firms GAO visited were taking actions to address these risks; (3) 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 organizations; (4) they told GAO that they did not expect potential year 2000 disruptions to have much long-term effect on their global operations; (5) U.S. banking and securities regulators were also addressing the international year 2000 risks of the institutions they oversee; (6) banking regulators had issued guidance for banks on addressing international year 2000 risks and were assessing bank preparations for these risks during bank examinations; (7) 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; (8) foreign financial institutions reportedly have lagged behind their U.S. counterparts in preparing for the year 2000 date change; (9) 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; (10) officials from 4 of the 7 large foreign financial institutions GAO 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; (11) 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; (12) promoting additional year 2000 readiness disclosure by foreign organizations was an issue for which regulators have taken steps to address; and (13) 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.