[House Report 105-417]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
 2d Session             HOUSE OF REPRESENTATIVES                105-417
_______________________________________________________________________


 
 EXAMINATION PARITY AND YEAR 2000 READINESS FOR FINANCIAL INSTITUTIONS 
                                  ACT

                                _______
                                

 February 24, 1998.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______


   Mr. Leach, from the Committee on Banking and Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 3116]

      [Including cost estimate of the Congressional Budget Office]

      The Committee on Banking and Financial Services, to whom 
was referred the bill (H.R. 3116) 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, having considered the 
same, report favorably thereon with an amendment and recommend 
that the bill as amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE; DEFINITION.

  (a) Short Title.--This Act may be cited as the ``Examination Parity 
and Year 2000 Readiness for Financial Institutions Act''.
  (b) Year 2000 Computer Problem Defined.--For purposes of this Act, 
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--
          (1) from, into, or between--
                  (A) the 20th and 21st centuries; or
                  (B) the years 1999 and 2000; or
          (2) with regard to leap year calculations.

SEC. 2. FINDINGS.

  The Congress finds as follows:
          (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.
          (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.

SEC. 3. SEMINARS AND MODEL APPROACHES TO YEAR 2000 COMPUTER PROBLEM.

  (a) Seminars.--
          (1) In general.--Each Federal banking agency and the National 
        Credit Union Administration Board shall offer seminars to all 
        depository institutions and credit unions under the 
        jurisdiction of such agency on the implication of the Year 2000 
        computer problem for--
                  (A) the safe and sound operations of such depository 
                institutions and credit unions; and
                  (B) transactions with other financial institutions, 
                including Federal reserve banks and Federal home loan 
                banks.
          (2) Content and schedule.--The content and schedule of 
        seminars offered pursuant to paragraph (1) 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.
  (b) Model Approaches.--
          (1) In general.--Each Federal banking agency and the National 
        Credit Union Administration Board shall make available to all 
        depository institutions and credit unions 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.
          (2) Variety of approaches.--In developing model approaches to 
        the Year 2000 computer problem pursuant to paragraph (1), 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.
  (c) Cooperation.--In carrying out this section, the Federal banking 
agencies and the National Credit Union Administration Board may 
cooperate and coordinate activities with each other, the Financial 
Institutions Examination Council, and appropriate organizations 
representing depository institutions or credit unions.
  (d) Federal Banking Agency Defined.--For purposes of this section, 
the term ``Federal banking agency'' has the meaning given to such term 
in section 3(z) of the Federal Deposit Insurance Act.

SEC. 4. REGULATION AND EXAMINATION OF SERVICE CORPORATIONS CONTROLLED 
                    BY SAVINGS ASSOCIATIONS AND SERVICE PROVIDERS.

  Section 5(d) of the Home Owners' Loan Act (12 U.S.C. 1464(d)) is 
amended by adding at the end the following new paragraph:
          ``(7) Regulation and examination of service corporations, 
        subsidiaries, and service providers.--
                  ``(A) General examination and regulatory authority.--
                          ``(i) In general.--A service corporation 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 such savings association.
                          ``(ii) Examination by other banking 
                        agencies.--The Director may authorize any other 
                        Federal banking agency that supervises any 
                        other person who maintains an ownership 
                        interest in the service corporation or 
                        subsidiary to make an examination of the 
                        corporation or subsidiary for purposes of 
                        clause (i).
                  ``(B) Applicability of section 8 of the federal 
                deposit insurance act.--
                          ``(i) In general.--A service corporation or 
                        subsidiary that is owned in whole or in part by 
                        a savings association shall be subject to the 
                        provisions of section 8 of the Federal Deposit 
                        Insurance Act as if the service corporation or 
                        subsidiary were an insured depository 
                        institution.
                          ``(ii) Appropriate federal banking agency.--
                        For purposes of clause (i), the Director shall 
                        be the appropriate Federal banking agency with 
                        regard to a service corporation or subsidiary 
                        described in such clause.
                  ``(C) Service performed by contract or otherwise.--
                Notwithstanding subparagraph (A), if a savings 
                association or subsidiary, or any savings and loan 
                holding company, affiliate, or entity referred to in 
                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 services authorized under 
                this Act or 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 itself on 
                        its own premises; and
                          ``(ii) the savings association, service 
                        corporation, subsidiary, holding company, 
                        affiliate, or entity shall notify the Director 
                        of the existence of the service relationship 
                        before the end of the 30-day period beginning 
                        on 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.
                  ``(D) Administration by the director.--The Director 
                may prescribe such regulations and issue such orders, 
                including regulations prescribed or orders issued 
                pursuant to section 8 of the Federal Deposit Insurance 
                Act, as may be necessary to enable the Director to 
                administer and carry out the purposes of this paragraph 
                and prevent evasions of this paragraph.''.

SEC. 5. REGULATION AND EXAMINATION OF CREDIT UNION ORGANIZATIONS AND 
                    SERVICE PROVIDERS.

  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) General Examination and Regulatory Authority.--
          ``(1) In general.--A credit union organization shall be 
        subject to examination and regulation by the Board to the same 
        extent as an insured credit union.
          ``(2) Examination by other federal agencies.--The Board may 
        authorize--
                  ``(A) any Federal regulatory agency that supervises 
                any activity of a credit union organization; or
                  ``(B) any Federal banking agency (as defined in 
                section 3(z) of the Federal Deposit Insurance Act) that 
                supervises any other person who maintains an ownership 
                interest in a credit union organization,
        to make an examination of the credit union organization for 
        purposes of paragraph (1).
          ``(3) Credit union organization defined.--For purposes of 
        this section, 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.
  ``(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 services authorized under this Act or any applicable State law, 
whether on or off its premises--
          ``(1) the performance of such services 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 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 before the end of the 30-day period beginning on 
        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 prescribe such 
regulations and issue such orders as may be necessary to enable the 
Board to administer and carry out the purposes of this section and 
prevent evasions of this section.
  ``(e) Expiration of Authority.--This section, and all power and 
authority of the Board under this section, shall cease to be effective 
as of December 31, 2001.''.

                                Purpose

    The purpose of H.R. 3116, the Examination Parity and Year 
2000 Readiness for Financial Institutions Act (the Act), as 
reported out of the Committee on Banking and Financial Services 
with an amendment, is to instruct the Federal Reserve Board, 
the Office of the Comptroller of the Currency, the Federal 
Deposit Insurance Corporation, the Office of Thrift 
Supervision, and the National Credit Union Administration to 
take proactive steps to assist federally regulated institutions 
in remediating their computer systems so as to preclude system 
failures caused by the century date change. Furthermore, this 
bill ensures that all federal financial regulatory agencies 
have statutory parity with respect to authority to examine and 
regulate institutions' third party service providers, including 
those that provide critical Year 2000-related services.
    Financial institutions are reliant upon technologically 
driven operations to provide everyday business functions to 
their customers--federally insured depositors. Without 
appropriate action to prepare for the Year 2000 computer 
problem, an institution may experience widespread failure of 
its information systems. It is incumbent that the federal 
financial regulators have the necessary authority to oversee 
and guide their regulated institutions' efforts to become Year 
2000 compliant. In this regard, the Act is intended to 
strengthen the assurance that each depositor's funds are safe 
and that the U.S. financial institutions remain domestically 
viable and internationally competitive.

                                Summary

    H.R. 3116 requires the federal financial regulatory 
agencies to hold seminars for financial institutions on the 
implications of the Year 2000 problem for safe and sound 
operations, and to provide model approaches for solving common 
Year 2000 problems.
    Second, the bill extends authority to the Office of Thrift 
Supervision and the National Credit Union Administration to 
examine and regulate the operations of service corporations or 
other entities that perform services under contract for thrifts 
and credit unions, a statutory authority that already exists 
for the Federal Reserve Board, the Office of the Comptroller of 
the Currency and the Federal Deposit Insurance Corporation.

                  Background and Need for Legislation

    The Year 2000 problem (also referred to as the ``Y2K'' 
problem or ``CDC/century date change'' problem) arises from the 
fact that most computer systems have relied on a 6-digit code 
for dates, with two digits each for year, month, and day. Dates 
like December 31, 1999, are typically recorded in computer 
shorthand simply as ``991231.'' The practice of using only two 
digits to identify the year saved computer data storage space 
and cut costs. Unfortunately, as a result of that economy, when 
the clock rolls over to January 1, 2000, many computers will 
assume that ``00'' means the year ``1900'' rather than 
``2000,'' and may reject entries, calculate erroneous results, 
or simply refuse to operate.
    The Year 2000 computer problem poses a serious challenge to 
the American economy, including the Nation's technology-
dependent banking and financial services industries. One of the 
nation's leading bank agency officials, Comptroller of the 
Currency Eugene Ludwig, warned in a speech on September 25, 
1997, that ``Y2K poses challenges of unprecedented urgency and 
complexity.''
    Nearly all of the thousands of financial institutions in 
the United States today rely on computers for such functions as 
check clearing, direct deposit, accounting, automated teller 
machine (ATM) networks, credit card processing, and electronic 
data exchanges with borrowers, customers, and other financial 
institutions. Even bank security systems, vaults, phone 
systems, elevators, and other building systems could 
malfunction if embedded, date-sensitive microchips fail to 
process the Year 2000 date change. Financial institutions are 
also vulnerable to the Year 2000 readiness of their borrowers 
because a borrower who fails to correct a Year 2000 problem may 
suffer business losses and default on loan repayment.
    Financial institutions face potential problems with 
internal, mission-critical computer systems but, perhaps even 
more significantly, are facing serious vulnerabilities as a 
result of their dependency on outside vendors for computer 
related services. At the Committee's February 5, 1998, hearing, 
a witness representing America's Community Bankers reported 
that, ``According to ACB research, approximately 97 percent of 
savings institutions use third-party service providers for some 
part of their operations.'' A representative of the National 
Association of Federal Credit Unions also reported that the 
credit union community is highly dependent on vendors and that, 
``Although many credit unions [* * *] have contacted their 
vendors for information on the status of their vendors' year 
2000 compliance, this information from vendors may be 
incomplete, inaccurate and cannot be independently verified.''
    The federal financial regulatory agencies--the Federal 
Reserve Board, the Office of the Comptroller of the Currency 
(OCC), the Federal Deposit Insurance Corporation (FDIC), the 
Office of Thrift Supervision (OTS), and the National Credit 
Union Administration (NCUA) are engaged in individual efforts, 
as well as collective interagency efforts under the umbrella of 
the Federal Financial Institutions Examination Council (FFIEC), 
to address the Year 2000 problem and ensure timely, corrective 
action is taken by the financial institutions under their 
supervision.
    A May 5, 1997, FFIEC statement to CEOs of financial 
institutions, service providers, federal agency officials, and 
examiners laid out a 5-phase process for managing Year 2000 
projects: awareness, assessment, renovation, validation 
(testing), and implementation. The statement also laid out a 
timetable for Year 2000 remediation, calling for all mission 
critical systems needing Year 2000 repairs to be identified by 
the third quarter of 1997, and strongly encouraging the 
industry to ensure that programming, hardware, and any other 
changes are largely finished and testing well underway by the 
end of 1998. This schedule will allow a full year--1999--to be 
dedicated to testing computer systems and their 
interdependencies internally as well as with external parties.
    At an earlier Committee hearing on November 4, 1997, the 
Committee heard testimony from Edward W. Kelley, Jr., a member 
of the Federal Reserve Board of Governors and Comptroller of 
the Currency Eugene A. Ludwig on the steps federal regulators 
are taking to ensure the nation's banking and financial systems 
will be prepared for the century date change. During that 
hearing, Governor Kelley reported that by mid-1998, the Federal 
Reserve Board will have conducted a Year 2000 examination of 
every bank, U.S. branch and agency of foreign banks, and 
service provider that the Federal Reserve supervises. Speaking 
for the OCC, Comptroller Ludwig also reported that his agency 
will conduct on-site Year 2000 exams of every national bank by 
the same deadline. Testifying also in his capacity as Chairman 
of the FFIEC, Comptroller Ludwig described the interagency 
supervisory strategy as ``aggressive and comprehensive.''
    In order to stay abreast of the Year 2000 progress of the 
federal financial regulatory agencies and the financial 
institutions under their jurisdiction, the Committee has 
requested quarterly progress reports from each of the agencies.
    The Committee endorses the efforts of the agencies and the 
FFIEC to provide guidance to financial institutions on the Year 
2000 and has included in H.R. 3116 language requiring the 
agencies to extend Year 2000 assistance to financial 
institutions by offering seminars and providing model 
approaches on the Year 2000 problem.
    The Committee also believes it is important for the federal 
financial regulators to work closely with their counterpart 
state regulatory agencies. In this regard, it is the 
Committee's intent that the examination authority extended to 
the NCUA in H.R. 3116 be implemented in accordance with the 
agency's commitments enunciated in the letter below. To the 
extent possible, NCUA should rely on state regulators for 
examinations of service providers for federal-insured state-
chartered credit unions, and NCUA should share with state 
regulators any information derived from examinations of service 
providers to federally-insured state-chartered credit unions. 
The letter follows:

                      National Credit Union Administration,
                                  Alexandria, VA, January 28, 1998.
Doug Duerr,
Executive Director, National Association of State Credit Union 
        Supervisors, Arlington, VA.
    Dear Doug: I am writing to respond to NASCUS's concerns 
about the proposed Year 2000 legislation, as outlined in Mary 
Martha Fortney's January 26th memorandum to Bob Loftus. As NCUA 
seeks every opportunity to work cooperatively with state 
regulators and your concerns are addressed under existing 
practices, we do not believe explicit statutory language 
covering the points you raise is necessary.
    First, your concern about information-sharing is addressed 
through our Document of Cooperation, through which we share 
credit union examination reports with state credit union 
supervisors. If we receive statutory authority to examine 
credit union service providers, these examinations, like credit 
union examinations, would be shared with state regulators under 
the Document of Cooperation.
    Next, your concern about requiring NCUA to rely on Y2K 
assessments of state regulators is also covered under existing 
policy. As you know, NCUA currently relies on examination 
information provided by state regulators. However, NCUA 
reserves the right to examine a state-chartered credit union 
with continued insurability concerns at any point. We have 
every confidence in the state regulators' abilities, but our 
statutory mandate to preserve the insurance fund requires us to 
reserve the right to take action if we believe there is a 
threat to a credit union's safety and soundness. NCUA would 
treat state credit union supervisors' oversight of credit union 
service providers the same way we currently treat their 
oversight of credit unions. That is, we would rely on their 
conclusions to the extent possible while reserving the right to 
examine the service provider ourselves at any time that we 
believe continued insurability concerns exist.
    In summary, because your reliance and information-sharing 
concerns are addressed under existing agreements and 
procedures, explicit statutory amendments to the Year 2000 bill 
are not necessary.
            Sincerely,
                                             David Marquis,
                               Director, Examination and Insurance.

Finally, the Committee wants to make clear that nothing in 
sections 4 or 5 of H.R. 3116 should be interpreted to limit or 
restrict in any way the existing statutory or regulatory 
authority of the Federal Reserve Board, the OCC, or the FDIC.

                                Hearings

    H.R. 3116, the Examination Parity and Year 2000 Readiness 
for Financial Institutions Act, was introduced on January 28, 
1998, by Chairman James A. Leach (R-IA) following his 
announcement at the Banking Committee's hearing on November 4, 
1997, that he was drafting legislation to address several 
aspects of the Year 2000 problem. The bill is cosponsored by 
all five of the Banking Committee's Subcommittee Chairs: 
Congressmen Michael N. Castle (R-DE), Richard H. Baker (R-LA), 
Rick Lazio (R-NY), Spencer Bachus (R-AL), and Congresswoman 
Marge Roukema (R-NJ).
    On February 5, 1998, the Committee held a hearing on H.R. 
3116. Testifying at the hearing were: The Honorable Norman 
D'Amours, Chairman, National Credit Union Administration; The 
Honorable Ellen Seidman, Director, Office of Thrift 
Supervision; Mr. James D. Shelton, Chairman, President and CEO 
of First Federal S&L of East Hartford (CT), on behalf of 
America's Community Bankers; Mr. James G. Mills, President and 
CEO of Three Rivers Federal Credit Union (IN), on behalf of the 
National Association of Federal Credit Unions; and Mr. Thomas 
E. Sargent, President and CEO of First Technology Credit Union 
(OR), on behalf of the Credit Union National Association.
    The Committee also received written comments for the 
hearing from the Federal Reserve Board, the Office of the 
Comptroller of the Currency, the Federal Deposit Insurance 
Corporation, and the National Association of State Credit Union 
Supervisors.

                   Committee Consideration and Votes

    On February 5, 1998, the full Committee met in open session 
to mark up H.R. 3116, the ``Examination Parity and Year 2000 
Readiness for Financial Institutions Act.'' The Committee 
called up H.R. 3116 as original text for purposes of amendment.
    During the mark up, there was only one amendment offered 
which the Committee adopted by voice vote. The amendment was 
offered by Messrs. Baker and Bachus to sunset by December 31, 
2001 the regulatory powers and authority of the National Credit 
Union Administration to examine and supervise the operations of 
service corporations or other entities that perform services 
under contract for credit unions.
    The Committee adopted by voice vote H.R. 3116, as amended, 
for final passage and to be reported to the full House of 
Representatives for consideration. Also, the Committee adopted, 
by voice vote, a motion to authorize the Chairman to offer such 
motions as may be necessary in the House of Representatives to 
go to conference with the Senate on a similar bill.

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings and recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

                        Constitutional Authority

    In compliance with clause 2(l)(4) of rule XI of the Rules 
of the House of the Representatives, the constitutional 
authority for Congress to enact this legislation is derived 
from the interstate commerce clause (Clause 3, Section 8, 
Article I). In addition, the power ``to coin money'' and to 
``regulate the value thereof'' provided for in Clause 5, 
Section 8, Article I, has been broadly construed to allow for 
the Federal chartering and regulation of banks and other 
financial institutions.

               New Budget Authority and Tax Expenditures

    Clause 3(l)(3)(B) of rule XI of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                    Congressional Accountability Act

    The reporting requirement under section 102(b)(3) of the 
Congressional Accountability Act (P.L. 104-1) is inapplicable 
because this legislation does not relate to terms and 
conditions of employment or access to public services or 
accommodations.

    Congressional Budget Office Cost Estimate and Unfunded Mandates 
                                Analysis

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, February 19, 1998.
Hon. James A. Leach,
Chairman, Committee on Banking and Financial Services, House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3116, the 
Examination Parity and Year 2000 Readiness for Financial 
Institutions Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mary 
Maginniss (for federal costs), and Jean Wooster (for the 
private-sector impact).
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).
    Enclosure.

H.R. 3116--Examination Parity and Year 2000 Readiness for Financial 
        Institutions Act

    Summary: H.R. 3116 would require the federal regulators of 
financial institutions to provide those institutions with model 
approaches for dealing with the year 2000 computer problem. 
Agencies would be required to take into account the need for 
different approaches for different institutions in developing 
guidance on year 2000 compliance. It also would give the Office 
of Thrift Supervision (OTS) and the National Credit Union 
Administration (NCUA) statutory parity with other federal 
banking regulators, including the Federal Deposit Insurance 
Corporation (FDIC), the Office of the Comptroller, and the 
Board of Governors of the Federal Reserve, to examine entities 
that provide services to financial institutions. Finally, the 
bill would require the federal financial regulatory agencies to 
hold seminars for financial institutions on the implications of 
the year 2000 problems for safety and soundness practices.
    CBO estimates that enacting this bill would have no 
significant impact on the federal budget and no pay-as-you-go 
implications. H.R. 3116 includes new private-sector mandates as 
defined in the Unfunded Mandates Reform Act (UMRA), but we 
estimate that the costs of complying with these mandates would 
not exceed the threshold set in UMRA ($100 million in 1996, 
adjusted annually for inflation) in any one year. The bill 
contains no intergovernmental mandates, as defined in UMRA, and 
would not affect the budgets of state, local, or tribal 
governments.
    Estimated cost to the Federal Government: Provisions 
requiring the banking regulators to provide model approaches 
and to hold seminars on the year 2000 problem are consistent 
with existing agency practices and thus would have no 
significant budgetary effect.
    The expansion of the examination authority of the OTS and 
NCUA also would have no net budgetary impact. The OTS now 
requires savings associations to obtain a service provider's 
consent before the OTS can examine the vendor, and in some 
cases, the lack of this consent has resulted in delays in 
conducting the examination. According to the OTS, the statutory 
authority provided by H.R. 3116 would allow the agency to 
continue to perform the types of examinations it is now 
conducting, but it would no longer have to rely primarily on 
contract provisions negotiated by the institutions it regulates 
to conduct these examinations. Because the bill would provide 
clear authority to the OTS and would make the examination 
process more efficient, CBO expects that OTS could realize some 
minimal savings. Because savings institutions reimburse the OTS 
for all administrative costs, however, any savings would be 
offset by a reduction in fees, resulting in no net budgetary 
effect.
    The bill also would extend through 2001 the authority of 
the NCUA to examine service contractors, including service 
organizations owned by credit unions. The legislation would 
allow the agency to review services that private-sector vendors 
provide but that are not currently subject to examination. It 
would also clarify the authority of the NCUA to oversee vendors 
currently complying with year 2000 reviews. As a result, CBO 
estimates that enacting H.R. 3116 would eliminate delays in 
obtaining consent from some service providers thereby reducing 
costs. These savings would be offset by expanding the number of 
service providers the agency examines. Because the agency 
collects fees to offset its supervisory costs, the net effect 
would be zero in any case.
    Pay-as-you-go considerations: Section 252 of the Balanced 
Budget and Emergency Deficit Control Act of 1985 sets up pay-
as-you-go procedures for legislation affecting direct spending 
and receipts. Legislation providing funding necessary to meet 
the deposit insurance commitment is excluded from these 
procedures. CBO believes that any costs incurred to implement 
H.R. 3116 would be related to maintaining the safety and 
soundness of financial institutions and thus would fall within 
this exemption. Therefore, the bill would have no pay-as-you-go 
implications.
    Estimated impact on the private sector: Sections 4 and 5 of 
H.R. 3116 would create new private-sector mandates, as defined 
by the Unfunded Mandates Reform Act, by granting authority to 
the OTS and the NCUA to examine operations of entities that 
perform services for financial institutions they regulate. The 
authority for the NCUA would be in effect through the year 
2001. CBO estimates that the annual direct costs of complying 
with those mandates would not exceed the statutory threshold 
for private-sector mandates ($100 million in 1996, adjusted 
annually for inflation).
    Section 5 would require that credit union organizations and 
service providers be subject to the same examinations as an 
insured credit union. Currently, the NCUA performs examinations 
of the credit unions. However, it does not perform any 
examinations on independent service providers (i.e., ones that 
are not affiliated with credit unions) that provide financial 
services to credit unions and credit union organizations. 
Furthermore, it does not have an accurate count of those 
service providers, although they have identified approximately 
120 primary independent service providers. According to 
information from the NCUA, it would limit its examination of 
those providers to critical areas that relate to the year 2000 
computer problem and would not impose any examination fee on 
the vendor. Based on published estimates of the cost of 
comprehensive examinations for financial institutions and on 
information provided by the FDIC, CBO estimates that the direct 
cost to the independent service providers to comply with the 
NCUA examinations would be well below the statutory threshold 
for private-sector mandates.
    Section 4 would require that service corporations and 
subsidiaries owned by savings associations and contractors 
performing services for those financial institutions would be 
subject to the same examination as an insured depository 
institution. Currently, under federal regulation, the OTS 
already performs those examinations. Thus, this requirement 
would not impose additional costs on the private sector.
    Sections 4 and 5 would also require that any savings 
association, service corporation, subsidiary, holding company, 
affiliate, insured credit union, or credit union organization 
notify the appropriate regulatory agency of any independent 
contract for financial services. CBO estimates that the cost of 
such notification would be negligible.
    Estimated impact on State, local, and tribal governments: 
H.R. 3116 contains no intergovernmental mandates as defined in 
UMRA and would not affect the budget of state, local or tribal 
governments.
    Estimate prepared by: Federal Costs: Mary Maginniss and 
Impact on the Private Sector: Jean Wooster.
    Estimate approved by: Robert A. Sunshine, Deputy Assistant 
Director for Budget Analysis.

                      Section-by-Section Analysis

                   Section 1. Short Title; Definition

    Subsection (a) cites the short title as the ``Examination 
Parity and Year 2000 Readiness for Financial Institutions 
Act.''
    Subsection (b) defines the Year 2000 computer problem to 
mean a problem which prevents technology from accurately 
processing, calculating, comparing, or sequencing data or time 
data from, into, or between the years 1999 and 2000, or between 
the 20th and 21st centuries. It also includes leap year 
calculations.

                          Section 2. Findings

    This section lists three findings pertaining to the Year 
2000 challenge to the nation's banking and financial services 
industries and the need for examination authority to ensure 
financial institutions will not be at risk.

 Section 3. Seminars and Model Approaches to Year 2000 Computer Problem

    Subsection (a) requires the federal banking agencies and 
National Credit Union Administration (``NCUA'') to offer 
seminars to financial institutions on the implications of the 
Year 2000 problem for safe and sound operations. The content 
and schedule of seminars is to be determined by each agency 
taking into account its resources and examination priorities.
    Subsection (b) requires each agency to make available to 
financial institutions model approaches to addressing common 
Year 2000 problems in such areas as project management, vendor 
contracts, testing, and business continuing planning. In 
developing such models, the agencies are to take into account 
the need for different approaches for different institutions.
    Subsection (c) authorizes the agencies, in carrying out 
their responsibilities under this section, to cooperate and 
coordinate activities with each other, the Federal Financial 
Institutions Examination Council (``FFIEC''), and appropriate 
outside organizations.
    Subsection (d) defines the banking agencies covered under 
this section to include the Board of Governors of the Federal 
Reserve, the Comptroller of the Currency (``OCC''), the Federal 
Deposit Insurance Corporation (``FDIC''), and the Director of 
the Office of Thrift Supervision (``OTS'').

     Section 4. Regulation and Examination of Service Corporations 
        Controlled by Savings Associations and Service Providers

    This section gives the OTS statutory parity with the 
Federal Reserve Board of Governors, OCC, and FDIC to examine 
the operations of service providers by authorizing OTS to 
examine service corporations owned in whole or in part by 
insured savings associations as well as the operations of other 
entities that perform services for savings associations.

Section 5. Regulation and Examination of Credit Union Organizations and 
                           Service Providers

    Section 5 likewise extends statutory parity to NCUA until 
December 31, 2001, to examine credit union service 
organizations (``CUSOs'') which are owned in whole or in part 
by credit unions, as well as other service providers under 
contract to federally insured credit unions.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                 SECTION 5 OF THE HOME OWNERS' LOAN ACT

SEC. 5. FEDERAL SAVINGS ASSOCIATIONS.

  (a) * * *
          * * * * * * *
  (d) Regulatory Authority.--
          (1) * * *
          * * * * * * *
          (7) Regulation and examination of service 
        corporations, subsidiaries, and service providers.--
                  (A) General examination and regulatory 
                authority.--
                          (i) In general.--A service 
                        corporation 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 such 
                        savings association.
                          (ii) Examination by other banking 
                        agencies.--The Director may authorize 
                        any other Federal banking agency that 
                        supervises any other person who 
                        maintains an ownership interest in the 
                        service corporation or subsidiary to 
                        make an examination of the corporation 
                        or subsidiary for purposes of clause 
                        (i).
                  (B) Applicability of section 8 of the federal 
                deposit insurance act.--
                          (i) In general.--A service 
                        corporation or subsidiary that is owned 
                        in whole or in part by a savings 
                        association shall be subject to the 
                        provisions of section 8 of the Federal 
                        Deposit Insurance Act as if the service 
                        corporation or subsidiary were an 
                        insured depository institution.
                          (ii) Appropriate federal banking 
                        agency.--For purposes of clause (i), 
                        the Director shall be the appropriate 
                        Federal banking agency with regard to a 
                        service corporation or subsidiary 
                        described in such clause.
                  (C) Service performed by contract or 
                otherwise.--Notwithstanding subparagraph (A), 
                if a savings association or subsidiary, or any 
                savings and loan holding company, affiliate, or 
                entity referred to in 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 services 
                authorized under this Act or 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 itself on its own 
                        premises; and
                          (ii) the savings association, service 
                        corporation, subsidiary, holding 
                        company, affiliate, or entity shall 
                        notify the Director of the existence of 
                        the service relationship before the end 
                        of the 30-day period beginning on 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.
                  (D) Administration by the director.--The 
                Director may prescribe such regulations and 
                issue such orders, including regulations 
                prescribed or orders issued pursuant to section 
                8 of the Federal Deposit Insurance Act, as may 
                be necessary to enable the Director to 
                administer and carry out the purposes of this 
                paragraph and prevent evasions of this 
                paragraph.
          * * * * * * *
                              ----------                              


                        FEDERAL CREDIT UNION ACT

          * * * * * * *

                       TITLE II--SHARE INSURANCE

          * * * * * * *

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

  (a) General Examination and Regulatory Authority.--
          (1) In general.--A credit union organization shall be 
        subject to examination and regulation by the Board to 
        the same extent as an insured credit union.
          (2) Examination by other federal agencies.--The Board 
        may authorize--
                  (A) any Federal regulatory agency that 
                supervises any activity of a credit union 
                organization; or
                  (B) any Federal banking agency (as defined in 
                section 3(z) of the Federal Deposit Insurance 
                Act) that supervises any other person who 
                maintains an ownership interest in a credit 
                union organization,
        to make an examination of the credit union organization 
        for purposes of paragraph (1).
          (3) Credit union organization defined.--For purposes 
        of this section, 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.
  (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 services authorized under this 
Act or any applicable State law, whether on or off its 
premises--
          (1) the performance of such services 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 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 before the end of the 30-day 
        period beginning on 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 prescribe 
such regulations and issue such orders as may be necessary to 
enable the Board to administer and carry out the purposes of 
this section and prevent evasions of this section.
  (e) Expiration of Authority.--This section, and all power and 
authority of the Board under this section, shall cease to be 
effective as of December 31, 2001.
          * * * * * * *

                                
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