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l l★K Federal Reserve Bank of Dallas DALLAS, TEXAS 75265-5906 October 22, 1999 Notice 99-89 TO: The Chief Executive Officer of each financial institution and others concerned in the Eleventh Federal Reserve District SUBJECT Joint Interagency Statement DETAILS The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision have issued a joint statement. The joint statement addresses the agencies’ supervisory approach to possible temporary balance sheet growth due to potential unusual market responses around the century date change. ATTACHMENT A copy of the agencies’ statement is attached. MORE INFORMATION If you have questions or need additional information, please contact Ann Worthy, (214) 922-6156, of the Banking Supervision Department. For additional copies of this Bank’s notice, contact the Public Affairs Department at (214) 922-5254. Also, you may obtain a copy by accessing our web site at http://www.dallasfed.org. After choosing the link for “Publications,” select the link for “District Notices.” For additional copies, bankers and others are encouraged to use one of the following toll-free numbers in contacting the Federal Reserve Bank of Dallas: Dallas Office (800) 333-4460; El Paso Branch Intrastate (800) 592-1631, Interstate (800) 351-1012; Houston Branch Intrastate (800) 392-4162, Interstate (800) 221-0363; San Antonio Branch Intrastate (800) 292-5810. Board of Governors of the Federal Reserve System Federal Deposit Insurance Corporation National Credit Union Administration Office of the Comptroller of the Currency Office of Thrift Supervision Joint Interagency Statement September 28, 1999 Introduction As part of their efforts to foster readiness for Year 2000, the Federal banking agencies have issued guidance to banking organizations calling for the development of contingency plans to address funding, liquidity, and other issues. In this regard, bank and thrift management are responsible for establishing realistic liquidity and funding plans and programs that are supported by the organization’s financial strength, capital position, and risk management capabilities. Unusual market responses to the century date change could lead to temporary balance sheet growth at some banking organizations during the century date change period. This growth could occur if a banking organization were to receive unusually large deposit inflows during the period. Similarly, such temporary asset growth could occur if corporate borrowers make unusual draws on their existing lines of credit, or request new lines, in response to a perceived need for extra liquidity during the century date change period. Absent other factors, large deposit inflows or increases in extensions of credit would likely result in an increase in total assets. Supervisory Approach to Temporary Balance Sheet Growth All banking organizations are responsible for managing prudently any temporary balance sheet growth that may occur. As part of the Federal banking agencies’ Year 2000 supervisory program, supervisors will assess the development and content of banking organizations’ contingency plans, including those that address funding and liquidity needs. These plans should address possible effects on the organization’s balance sheet that may arise as a result of unusually large deposit inflows and significantly increased lending. It is likely that relatively few banking organizations will experience Year 2000-related asset growth that is significant in relation to their size, and any such asset growth is expected to be temporary. Some organizations that experience significant Year 2000-related asset growth may, despite prudent balance sheet management techniques, also experience a temporary decline in their regulatory capital ratios as a result of responding to customers’ needs over the century date change period. Such a decline has the potential to result in certain consequences for the organization under statutes and regulations that the Federal banking agencies administer. If an organization believes such a situation could arise, management is urged to contact its primary supervisor to discuss options to address these issues. In assessing supervisory options, the Federal banking agencies will consider whether the institution exercises prudent and responsible measures to manage its balance sheet, maintains a fundamentally sound financial condition, and provides evidence that any drop in capital ratios is temporary. Any questions on this issue should be directed to the banking organization’s primary supervisor.