Circular
Year 2000 Questions and Answers
October 15, 1998
Circular No. 11100

To the Chief Executive Officers of All State Member Banks, Bank Holding Companies,
Edge and Agreement Corporations, and State-Chartered Branches and Agencies of
Foreign Banks in the Second Federal Reserve District, and to Related Vendors Serving These Organizations:

The series of Year 2000 guidance papers released by the FFIEC this year has raised a number of issues that warrant additional clarification, particularly with regard to testing. Accordingly, the FFIEC agencies have developed a document addressing these issues in a question and answer format.

The questions and answers focus on the most commonly asked testing-related questions received by the agencies, given that financial institutions are currently concentrating on the validation phase of their Year 2000 projects. The document provides specific guidance on the acceptability of proxy testing for financial institutions, service providers, and software vendors. It is important to note that the information contained in the enclosed answers is not intended to introduce additional expectations, but rather is meant to provide further insight into the FFIEC guidelines.

In addition, it is also important to re-emphasize that testing is ultimately a business risk management decision that individual organizations must make. As a result, important differences in testing strategies - what systems to test, what dates to test, when and how to test, for example - will exist between different organizations. The FFIEC guidance on testing is intended to provide institutions with a general framework for developing their own testing strategies; as such, the guidance provides sufficient flexibility for organizations to develop testing strategies that meet their own specific business needs.

If you have any questions, please contact, at this Bank, Sarah Dahlgren, Vice President, Bank Supervision Group, or Ira Adler, William Francis, or Joseph Galati, Examining Officers, Advisory and Technical Services Function (respectively).