Weiss Ratings, Inc., the only provider of Y2K readiness ratings on banks, insurance companies, and Fortune 1000 companies, has found in a new survey of Y2K preparedness, 247 of 1,128 banks and S&Ls reported completion dates that were deemed to be inadequate, according to Weiss Ratings, Inc., a leading bank rating agency. Of those, 195, or 17%, were assigned a Y2K grade of "Below Average," while 52, or 5%, were rated "Low."
The Weiss Y2K survey, mailed on December 30, 1998 to 10,715 federally insured depository institutions, asked 13 questions about each company’s timeline for completing various milestones in the Y2K remediation and testing process.
In response to one of the most important questions — Did the institution fix and test all internal mission-critical systems before year-end 1998? — more than one third answered "no." This was despite a regulatory mandate that these systems be "substantially" completed by December 31, 1998.
"The varying interpretations of the word ‘substantially’ by the banks and S&Ls are creating industry-wide ambiguity," commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings, Inc. "Many banks report they’ve complied with this regulatory benchmark, even though their expected completion dates remain months into the future. We believe they may need that time to complete the additional tasks of fixing and testing service providers’ systems and ‘non-mission-critical’ computer programs."
The Weiss results contradict recently announced tallies by the FDIC — that only 2.9% of insured institutions have failed to achieve a "satisfactory" rating in their Y2K compliance evaluations.
"This discrepancy is a mystery to me," added Dr. Weiss. "The regulators are either basing their statistics on old data or are interpreting the word ‘substantially’ very liberally. The end result is that consumers are not being given an accurate picture."
By evaluating the banks’ actual or expected completion dates for critical tasks, the Weiss Y2K survey separates those that have truly made good progress from those that appear to be lagging behind.
On the other end of the spectrum, 177 institutions, or 15.6%, reported data that Weiss interpreted as an indication of "High" progress in their Y2K preparations. The balance, representing 62.5% of respondents, indicated a level of progress that was deemed "Average," reflecting adequate preparations at this time.
Weiss advises consumers and analysts to judge the Y2K ratings in the context of a company’s overall financial strength. A bank with abundant capital resources is better equipped to remedy its Y2K problems today and cope with any consequences after the year 2000. In contrast, a bank with apparent deficiencies in both its Y2K progress and its financial stability may be at serious risk.
Institutions receiving a "Low" Y2K progress rating and a "Fair" or "Weak" financial safety rating, include:
- Stillwater NB&TC (Stillwater, OK)
- MidSouth Bank (Monette, AR)
Among institutions receiving both a "High" Y2K grade and an "Excellent" financial safety rating are:
- Piedmont FS&LA (Winston-Salem, NC)
- Centreville Savings Bank (West Warwick, RI)
- American NB&TC (Danville, VA)
None of the very large banks surveyed by Weiss (with $1 billion or more in assets)
received "Low" or "High" Y2K grades. However, banks such as Wachovia
Bank (Winston-Salem, NC), Charter One Bank (Cleveland, OH), and People’s Bank
(Bridgeport, CT) were graded "Below Average" for their Y2K progress, while Bank
of America (San Francisco, CA), Washington Mutual (Stockton, CA) and Fleet NB (Providence,
RI) received a grade of "Average."
Among banks and S&Ls responding to a Weiss Y2K readiness survey mailed December 30, 1998, a surprisingly large percentage -- 32% -- admit that they missed a critical Y2K deadline.
These institutions report that they did not complete remediation and testing of internal mission-critical systems by December 31, 1998. Furthermore, 20% do not anticipate completion until March. This implies a failure to comply with the federal requirement that "testing of internal mission-critical systems should be substantially complete" by December 31, 1998.*
This finding directly contradicts recent assurances from banking regulators that only 4% of banking institutions have been rated "unsatisfactory" or "needs improvement."
"I don’t understand how the authorities can give ‘satisfactory’ Y2K compliance ratings to institutions that have apparently missed a critical compliance deadline," commented Martin Weiss, Ph.D., chairman of Weiss Ratings, Inc. "I personally believe the authorities are either using outdated information in their pronouncements or simply sugar-coating the truth. In the long run, I feel this can only damage their credibility and create the conditions for the very consumer panic everyone wants to avoid."
To date, 909 banks and S&Ls have responded to the Weiss survey. Among these, only 620 (68%) stated that they had completed the required Y2K fixes on all internal mission-critical systems by December 31, while 289 (32%) reported that they had missed the deadline. Among these, 184 institutions (20% of respondents) stated that they did not anticipate completing the fixes until after February 28. Final results of the Weiss survey, with additional analysis, will be released in early March.
"Furthermore," Weiss adds, "we must assume that, on average, institutions that did not respond to our survey are more likely to be late in fixing their Y2K problems than those that did."
Weiss urges consumers to write their Congressmen to require full and honest disclosure from regulators regarding the current Y2K status of financial institutions -- not only for banks and S&Ls, but also for insurers and credit unions. Further, Weiss advocates full disclosure to consumers of the official Y2K ratings issued to all banks and S&Ls by the regulators. Currently, these ratings are deemed strictly confidential and are not available to the public.
These statistics of the fortune 100 are available at: www.weissratings.com
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