Y2K: A pothole on the information super highway to electronic banking

This Article describes FDIC initiatives to address deposit insurance questions, consumer issues, and safety and soundness concerns as both banks and non-banks began to roll out new electronic banking products. It then explains, from a regulatory perspective, the impact of the Year 2000 computer problem, which intervened to disrupts what appeared to be a dramatic change in the delivery of financial services. The first section of the article discuses the emergence of electronic banking and the FDIC response including: (1)FDIC staff opinion letters and General Counsel Opinion No.8, published in the Federal Register, on the applicability of federal deposit insurance to stored value cards and electronic cash; (2)the FDIC's procedures for safety and soundness examinations of electronic banking operations; (3) the Division of Compliance and Consumer Affairs' guidance to banks, developed in conjunction with the FFIEC, on the application of federal consumer protection laws to transactional bank web sites; (4)two Financial Institution Letters on the privacy of consumer data in an electronic environment: (a) Online Privacy of Consumer Personal Information providing guidance on the content of bank privacy polices; and (b) Pretext Phone Calling providing guidance on securing customer information against inappropriate release in response to telephone inquiries; and (5)the FDIC's web site which enables the public to report entities which may be falsely representing themselves as banks or as offering insured deposit products on the Internet. The second major section of the article discusses the emergence of the Year 2000 computer problem and the FDIC response, part of the most concerted pro-active effort the bank supervisory agencies have ever brought to bear on a single information management issue. This section includes discussions of: (1) the 29 Financial Institution Letters on Y2K readiness the FDIC issued to banks from July 1996 to June 1999, which set forth a step by step internal readiness program and approaches to external threats in the event of Y2K failures of service providers, correspondent banks, and significant borrowers; (2) FDIC Y2K readiness assessments of 6,000 state non-member banks completed in June 1998 and again in March 1999; (3) the FDIC Y2K readiness outreach program comprised of 137 seminars for bankers and four regional conferences for software vendors and service providers; (4) FDIC Y2K enforcement actions involving eleven banks and one data processing vendor and the publication in the Federal Register of the Interagency Year 2000 Standards for Safety and Soundness; (5) consumer awareness materials created by the FDIC, and through the FFIEC, which the FDIC distributed in bulk to state non-member banks; and (6) the FDIC's internal Y2K remediation efforts. The article concludes with the observation that once the Y2K pothole in the information superhighway is repaired, the application of technology will continue the globalization of markets and the parallel development of electronic commerce of which electronic banking is an integral part.