[Congressional Record Volume 144, Number 14 (Tuesday, February 24, 1998)]
[Senate]
[Pages S929-S931]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. BENNETT (for himself and Mr. Dodd):
  S. 1671. A bill to address the Year 2000 computer problems with 
regard to financial institutions, to extend examination parity to the 
Director of the Office of Thrift Supervision and the National Credit 
Union Administration, and for other purposes; to the Committee on 
Banking, Housing, and Urban Affairs.


     THE EXAMINATION PARITY AND YEAR 2000 READINESS FOR FINANCIAL 
                            INSTITUTIONS ACT

  Mr. BENNETT. Mr. President, I rise today, with my esteemed colleague 
Senator Dodd, to address an issue of significant import. Almost all of 
our nation's commercial banks, thrifts, and credit unions are regulated 
and insured. This brings great peace of mind to the American public. We 
all rest easier knowing that our funds, held by our insured and 
regulated financial institutions, are protected by (a) an insurance 
fund, (b) a safety and soundness regulator, and (c) the full faith and 
credit of the US Treasury. In order to continue this tradition of safe 
and sound banking practice, we need to ensure that banking law stays 
abreast of current practices in the market place and that our banks 
have the most up-to-date information available on upcoming issues 
affecting the safety and soundness of their operations.
  The Bill we introduce today has a two-fold purpose. It grants the 
Office of Thrift Supervision (OTS) and the National Credit Union 
Administration (NCUA) the authority to examine third party service 
organizations which have assumed more of the traditional bank 
functions. This bill will make OTS and NCUA comparable to the Office of 
the Controller of the Currency and the Federal Deposit Insurance 
Corporation in their ability to ensure safe and sound banking practices 
as they relate to third party service organizations. This Bill also 
requires federal financial regulatory agencies to hold seminars for 
financial institutions on the implications of the Year 2000 (Y2K) 
problem for safe and sound operations, and to provide model approaches 
for solving common Y2K problems.
  The authorities proposed for the NCUA and OTS have been requested by 
both regulatory agencies. NCUA ``strongly supports [this proposal] and 
urges its quick enactment.'' OTS, in separate letters to Senator Dodd 
and myself, refers to the current situation as an ``obstacle'' to their 
supervisory efforts and a ``statutory deficiency''. OTS Director 
Seidman further states ``I support your efforts. . . . I have asked my 
staff to cooperate fully with Senate Banking Committee staff to address 
any concerns you may have regarding this provision.''
  OTS staff has been very helpful in this effort and I want to take 
this opportunity to thank OTS Director Seidman for her assistance as 
well as Ms Deborah Dakins. I also want to express appreciation to the 
Senate Banking Committee staff, especially Mr. Andrew Lowenthal, and my 
own Subcommittee staff for their efforts.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1671

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Examination Parity and Year 
     2000 Readiness for Financial Institutions Act''.

     SEC. 2. YEAR 2000 READINESS FOR FINANCIAL INSTITUTIONS.

       (a) Findings.--The Congress finds that--
       (1) the Year 2000 computer problem poses a serious 
     challenge to the American economy, including the Nation's 
     banking and financial services industries;
       (2) thousands of banks, savings associations, and credit 
     unions rely heavily on internal information technology and 
     computer systems, as well as outside service providers, for 
     mission-critical functions, such as check clearing, direct 
     deposit, accounting, automated teller machine networks, 
     credit card processing, and data exchanges with domestic and 
     international borrowers, customers, and other financial 
     institutions; and
       (3) Federal financial regulatory agencies must have 
     sufficient examination authority to ensure that the safety 
     and soundness of the Nation's financial institutions will not 
     be at risk.
       (b) Definitions.--For purposes of this section--
       (1) the terms ``depository institution'' and ``Federal 
     banking agency'' have the same meanings as in section 3 of 
     the Federal Deposit Insurance Act;

[[Page S930]]

       (2) the term ``Federal home loan bank'' has the same 
     meaning as in section 2 of the Federal Home Loan Bank Act;
       (3) the term ``Federal reserve bank'' means a reserve bank 
     established under the Federal Reserve Act;
       (4) the term ``insured credit union'' has the same meaning 
     as in section 101 of the Federal Credit Union Act; and
       (5) the term ``Year 2000 computer problem'' means, with 
     respect to information technology, any problem which prevents 
     such technology from accurately processing, calculating, 
     comparing, or sequencing date or time data--
       (A) from, into, or between--
       (i) the 20th and 21st centuries; or
       (ii) the years 1999 and 2000; or
       (B) with regard to leap year calculations.
       (c) Seminars and Model Approaches to Year 2000 Computer 
     Problem.--
       (1) Seminars.--
       (A) In general.--Each Federal banking agency and the 
     National Credit Union Administration Board shall offer 
     seminars to all depository institutions and insured credit 
     unions under the jurisdiction of such agency on the 
     implication of the Year 2000 computer problem for--
       (i) the safe and sound operations of such depository 
     institutions and credit unions; and
       (ii) transactions with other financial institutions, 
     including Federal reserve banks and Federal home loan banks.
       (B) Content and schedule.--The content and schedule of 
     seminars offered pursuant to subparagraph (A) shall be 
     determined by each Federal banking agency and the National 
     Credit Union Administration Board taking into account the 
     resources and examination priorities of such agency.
       (2) Model approaches.--
       (A) In general.--Each Federal banking agency and the 
     National Credit Union Administration Board shall make 
     available to each depository institution and insured credit 
     union under the jurisdiction of such agency model approaches 
     to common Year 2000 computer problems, such as model 
     approaches with regard to project management, vendor 
     contracts, testing regimes, and business continuity planning.
       (B) Variety of approaches.--In developing model approaches 
     to the Year 2000 computer problem pursuant to subparagraph 
     (A), each Federal banking agency and the National Credit 
     Union Administration Board shall take into account the need 
     to develop a variety of approaches to correspond to the 
     variety of depository institutions or credit unions within 
     the jurisdiction of the agency.
       (3) Cooperation.--In carrying out this section, the Federal 
     banking agencies and the National Credit Union Administration 
     Board may cooperate and coordinate their activities with each 
     other, the Financial Institutions Examination Council, and 
     appropriate organizations representing depository 
     institutions and credit unions.

     SEC. 3. REGULATION AND EXAMINATION OF SERVICE PROVIDERS.

       (a) Regulation and Examination of Savings Association 
     Service Companies.--
       (1) Amendment to home owners' loan act.--Section 5(d) of 
     the Home Owners' Loan Act (12 U.S.C. 1464(d)) is amended by 
     adding at the end the following:
       ``(7) Regulation and examination of savings association 
     service companies, subsidiaries, and service providers.--
       ``(A) General examination and regulatory authority.--A 
     service company or subsidiary that is owned in whole or in 
     part by a savings association shall be subject to examination 
     and regulation by the Director to the same extent as that 
     savings association.
       ``(B) Examination by other banking agencies.--The Director 
     may authorize any other Federal banking agency that 
     supervises any other owner of part of the service company or 
     subsidiary to perform an examination described in 
     subparagraph (A).
       ``(C) Applicability of section 8 of the federal deposit 
     insurance act.--A service company or subsidiary that is owned 
     in whole or in part by a saving association shall be subject 
     to the provisions of section 8 of the Federal Deposit 
     Insurance Act as if the service company or subsidiary were an 
     insured depository institution. In any such case, the 
     Director shall be deemed to be the appropriate Federal 
     banking agency, pursuant to section 3(q) of the Federal 
     Deposit Insurance Act.
       ``(D) Service performed by contract or otherwise.--
     Notwithstanding subparagraph (A), if a savings association, a 
     subsidiary thereof, or any savings and loan affiliate or 
     entity, as identified by section 8(b)(9) of the Federal 
     Deposit Insurance Act, that is regularly examined or subject 
     to examination by the Director, causes to be performed for 
     itself, by contract or otherwise, any service authorized 
     under this Act or, in the case of a State savings 
     association, any applicable State law, whether on or off its 
     premises--
       ``(i) such performance shall be subject to regulation and 
     examination by the Director to the same extent as if such 
     services were being performed by the savings association on 
     its own premises; and
       ``(ii) the savings association shall notify the Director of 
     the existence of the service relationship not later than 30 
     days after the earlier of--

       ``(I) the date on which the contract is entered into; or
       ``(II) the date on which the performance of the service is 
     initiated.

       ``(E) Administration by the director.--The Director may 
     issue such regulations and orders, including those issued 
     pursuant to section 8 of the Federal Deposit Insurance Act, 
     as may be necessary to enable the Director to administer and 
     carry out this paragraph and to prevent evasion of this 
     paragraph.
       ``(8) Definitions.--For purposes of this section--
       ``(A) the term `service company' means--
       ``(i) any corporation--

       ``(I) that is organized to perform services authorized by 
     this Act or, in the case of a corporation owned in part by a 
     State savings association, authorized by applicable State 
     law; and
       ``(II) all of the capital stock of which is owned by 1 or 
     more insured savings associations; and

       ``(ii) any limited liability company--

       ``(I) that is organized to perform services authorized by 
     this Act or, in the case of a company, 1 of the members of 
     which is a State savings association, authorized by 
     applicable State law; and
       ``(II) all of the members of which are 1 or more insured 
     savings associations;

       ``(B) the term `limited liability company' means any 
     company, partnership, trust, or similar business entity 
     organized under the law of a State (as defined in section 3 
     of the Federal Deposit Insurance Act) that provides that a 
     member or manager of such company is not personally liable 
     for a debt, obligation, or liability of the company solely by 
     reason of being, or acting as, a member or manager of such 
     company; and
       ``(C) the terms `State savings association' and 
     `subsidiary' have the same meanings as in section 3 of the 
     Federal Deposit Insurance Act.''.
       (2) Conforming amendments to section 8 of the federal 
     deposit insurance act.--Section 8 of the Federal Deposit 
     Insurance Act (12 U.S.C. 1818) is amended--
       (A) in subsection (b)(9), by striking ``to any service 
     corporation of a savings association and to any subsidiary of 
     such service corporation'';
       (B) in subsection (e)(7)(A)(ii), by striking ``(b)(8)'' and 
     inserting ``(b)(9)''; and
       (C) in subsection (j)(2), by striking ``(b)(8)'' and 
     inserting ``(b)(9)''.
       (b) Regulation and Examination of Service Providers for 
     Credit Unions.--Title II of the Federal Credit Union Act (12 
     U.S.C. 1781 et seq.) is amended by inserting after section 
     206 the following new section:

     ``SEC. 206A. REGULATION AND EXAMINATION OF CREDIT UNION 
                   ORGANIZATIONS AND SERVICE PROVIDERS.

       ``(a) Regulation and Examination of Credit Union 
     Organizations.--
       ``(1) General examination and regulatory authority.--A 
     credit union organization shall be subject to examination and 
     regulation by the Board to the same extent as that insured 
     credit union.
       ``(2) Examination by other banking agencies.--The Board may 
     authorize to make an examination of a credit union 
     organization in accordance with paragraph (1)--
       ``(A) any Federal regulator agency that supervises any 
     activity of a credit union organization; or
       ``(B) any Federal banking agency that supervises any other 
     person who maintains an ownership interest in a credit union 
     organization.
       ``(b) Applicability of Section 206.--A credit union 
     organization shall be subject to the provisions of section 
     206 as if the credit union organization were an insured 
     credit union.
       ``(c) Service performed by Contract or Otherwise.--
     Notwithstanding subsection (a), if an insured credit union or 
     a credit union organization that is regularly examined or 
     subject to examination by the Board, causes to be performed 
     for itself, by contract or otherwise, any service authorized 
     under this Act or, in the case of a State credit union, any 
     applicable State law, whether on or off its premises--
       ``(1) such performance shall be subject to regulation and 
     examination by the Board to the same extent as if such 
     services were being performed by the insured credit union or 
     credit union organization itself on its own premises; and
       ``(2) the insured credit union or credit union organization 
     shall notify the Board of the existence of the service 
     relationship not later than 30 days after the earlier of--
       ``(A) the date on which the contract is entered into; or
       ``(B) the date on which the performance of the service is 
     initiated.
       ``(d) Administration by the Board.--The Board may issue 
     such regulations and orders as may be necessary to enable the 
     Board to administer and carry out this section and to prevent 
     evasion of this section.
       ``(e) Definitions.--For purposes of this section--
       ``(1) the term `credit union organization' means any entity 
     that--
       ``(A) is not a credit union;
       ``(B) is an entity in which an insured credit union may 
     lawfully hold an ownership interest or investment; and
       ``(C) is owned in whole or in part by an insured credit 
     union; and
       ``(2) the term `Federal banking agency' has the same 
     meaning as in section 3 of the Federal Deposit Insurance Act.
       ``(f) Expiration of Authority.--This section and all powers 
     and authority of the Board under this section shall cease to 
     be effective as of December 31, 2001.''.


[[Page S931]]


  Mr. DODD. Mr. President. I am very pleased to join with Senator 
Bennett to introduce the ``Examination Parity and Year 2000 Readiness 
For Financial Institutions Act.'' This legislation, while technical in 
nature, will provide badly needed authority and guidance to Federal 
financial regulators to help their supervised institutions cope with 
the Year 2000 computer problem.
  The Year 2000--or Y2K--computer problem is caused by the inability of 
most of the major financial systems to process the year 2000 as the one 
that follows the year 1999. This is caused by the fact that basic 
computer code, much of it written as many as thirty years ago, reads 
dates as two-digits, ``98'' or ``99,'' instead of four digits ``1999'' 
or ``2000.'' If left untreated, computers will read the year 2000 as 
the years 1900, 1980 or some other default date. The result is not only 
erroneous calculations, but the total crash of many critical financial 
systems.
  Federal financial regulators have been very active, of late, in 
helping their supervised institutions prepare for this extremely 
dangerous problem. However, both the Office of Thrift Supervision and 
the National Credit Union Administration have notified Senator Bennett 
and I that they lack the authority to examine the Year 2000 
preparations of service providers to thrifts and credit unions. 
Currently, other federal financial regulators--the Federal Reserve, 
Office of the Comptroller of the Currency and the Federal Deposit 
Insurance Corporation--have this authority.
  These service providers perform many of the key transaction and data 
processing for federally-insured thrifts and credit unions, 
particularly smaller institutions for whom it is not cost-effective to 
establish their own computer systems. As a result, it is imperative to 
the safety and soundness of these institutions for the regulators to be 
able to establish that their service providers will be Year 2000 
compliant.
  The legislation also contains provisions that require all financial 
regulators to hold seminars to educate their respective supervised 
institutions and, to the maximum extent possible, provide model 
solutions for fixing the problem. The beneficial impact of such 
outreach and education efforts for federally-insured institutions is 
self-evident.
  Mr. President, the Year 2000 problem is one that we will have to 
confront in many more ways than this legislation. The extent of the 
problem goes well beyond the financial services industry to affect 
virtually every segment of our nation's economy. But this sensible bill 
is a good first step to ensuring that Federal financial regulators have 
the tools necessary to address the problem in their area of 
jurisdiction.
                                 ______