We welcome this morning Mr. Jack Brock from the General Accounting Office (GAO) and the
Honorable Ellen Seidman, Director of the Office of Thrift Supervision (OTS). The GAO has
reported before this Subcommittee on the Y2K remediation efforts of the National Credit Union
Administration and the Federal Deposit Insurance Corporation. It has yet to complete its reviews
of and report on the Federal Reserve and the Office of Comptroller of the Currency. Inasmuch as
we will hear about the OTS today, we have reached the halfway point in our series.
As we consider the OTS Y2K preparedness, we look at two different questions. The first is
"How good and how current is OTS in remediating its own automated systems?" The second is
"How good and how current is OTS in overseeing the remediation efforts of the Thrifts it
Today, the GAO will tell us that of all the financial regulatory agencies reviewed to date, the
OTS is perhaps the farthest ahead in dealing with its internal automated systems. It has already
identified its mission critical systems and has renovated 13 of its 15 mission critical systems. I
applaud the OTS and its management for this effort. While it lacks a comprehensive Y2K plan
and it has not yet developed contingency plans, it does have plans to complete these in the near
The Thrift industry plays an important role in the financial services industry. The OTS examines
over 1200 Thrifts which account for $770 billion in assets. The OTS is about on par with the
other regulators in providing guidance to the institutions it regulates. I was happy to see
however, that OTS has not relied exclusively on the FFIEC in that it has augmented some of the
FFIEC guidance thereby improving the chances for timely Y2K compliance by Thrifts.
I remain concerned about the slowness of Federal financial regulatory agencies in dealing with and providing guidance to the institutions they regulate. Since this guidance is being developed jointly through the FFIEC, all financial regulatory agencies share the same lack of timely progress. Yesterday the FFIEC released guidance on the Y2K risks faced by financial institutions using service providers and venders and the Y2K risks posed to financial institutions by their customers. By the middle of this month, the FFIEC hopes to release guidance on dealing with venders and borrowers and by the end of next month, it hopes to provide guidance on contingency planning, a milestone government agencies were to have accomplished by the middle of last year. While the OMB and the GAO have expedited their time schedule for Federal agency renovation and validation, the FFIEC has been unable to expedite its schedule to allow regulated institutions the timely guidance they need to keep pace with the Federal agencies' timetable.
I have been talking for quite some about the likelihood that the Y2K problem will profoundly
impact America's economy by transferring wealth and resources from companies who fail to
manage their Y2K problem effectively to those who do. As most of us in this room probably
know, this concept was dramatically highlighted recently by the merger activity which took
place in the thrift industry.
Yesterday, H.F. Ahmanson was purchased by Washington Mutual for a little bit less than $10
billion. In a conference call to investors yesterday morning and in subsequent statements to the
media, Ahmanson Chairman and CEO Charles Rinehart outlined some of the key reasons that led
his company to put itself up for sale. Not surprisingly, Y2K was one of the major factors.
Ahmanson apparently had both the time and the resources to become Y2K compliant. However,
it is now clear that allocating the resources necessary to manage their Y2K problem would have
prevented them from spending sufficient money on other needed technological upgrades. By
allocating available resources to Y2K rather than putting them into productive business use,
Ahmanson would have fallen behind the rest of the industry in sales and services, and in the
information they are able to offer their customers. Since Y2K non-compliance was not an
option, Ahmanson decided to put itself up for sale.
Washington Mutual, which has already invested approximately $35 million on Y2K-related
investments, has told my Subcommittee that they are still on schedule to complete Y2K
remediation by December of 1998, allowing themselves one full year for testing. I find this
particularly remarkable given the fact that Washington Mutual has acquired 21 separate financial
institutions in the last decade. I should also point out that Washington Mutual is the largest
residential lender in Utah. So we are beginning to see a transfer of wealth taking place here
We will hear first from Mr. Jack Brock of the GAO and then from Ms. Seidman from the OTS.