Good morning. First of all, I would like to commend Chairman Bennett for calling this hearing on liability issues originating from the Year 2000 computer problem.
The Year 2000 problem is tremendously complicated because it affects all levels of government and every private business. The Banking Committee, and this subcommittee, have worked to focus the attention of the financial industry and its federal regulators on the need for immediate action. And while business and government should be working right now to prevent a computer catastrophe in January of 2000, the reality is that computer problems will occur, and some of them will be very complicated and very expensive to fix. That brings us to the subject of today's hearing -- liability -- or who is responsible if things go wrong. Mr. Chairman, I am glad to see that, through this subcommittee, you are diligently pursuing all aspects of the Year 2000 problem.
Although the focus of this hearing goes beyond banks alone, I must say that I am concerned about the poor progress that many banks have made on the Year 2000 problem. The bank regulators now say that, despite efforts to focus industry attention on this ticking time bomb, many banks still have not taken even the most basic steps to prepare for Year 2000. Most larger banks are hard at work. But smaller banks, especially community banks, are in poor shape. Fifteen percent of these banks have done virtually nothing to address the Year 2000. Another twenty percent are only just waking up to the problem. And they don't have two years to do the work: they need to fix their computers within the next year so that they will have enough time for testing.
Mr. Chairman, this is a disaster in the making. Both the full committee and, I am sure, this subcommittee will hold the bank regulators responsible for moving the industry forward on this problem.
Unfortunately, although banking institutions are not where they should be, they are at least ahead of the rest of industry. Experts have estimated that only a fraction -- no more than 30% -- of U.S. companies have seriously looked at their Year 2000 risks.
The other 70% will be held accountable, by their customers, business partners, and shareholders. If business is interrupted or computer repair costs are unexpectedly high, or if ruinous litigation results from inattention to the Year 2000 problem, company directors and officers will be held responsible. They cannot claim that they had never heard of the Year 2000 problem, and they certainly cannot claim that the arrival of January 1, 2000 was unexpected.
Even companies that have worked diligently to prepare for 2000 may run into trouble with suppliers or partners who were not so careful. Software or equipment that was designed to work well into the next millennium may break down completely if it receives bad data' from outside the company. This raises complicated problems of liability, warranties, and disclosure. I see that today's witnesses are well-qualified to discuss some of these problems.
These issues raise the possibility of a blizzard of litigation, reaching perhaps into the trillions of dollars, starting in the next few years. Should Congress act to address liability issues associated with Year 2000? Is there a need for legislation that would clarify disclosure obligations or protect companies against lawsuits? I welcome the witnesses who appear before the subcommittee today, especially Mr. Jinnett who is here from New York. I look forward to hearing your views on these questions.
Mr. Chairman, once again I thank you for calling this hearing on an extremely important issue.
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