BC - 187
BANKING ISSUANCE
Comptroller of the Currency
Administrator of National Banks
Type:  Banking Circular
Subject:  Financial Information on Data Servicers Processing

TO:  Chief Executive Officers of All National Banks, District Deputy
     Comptrollers and All Examining Personnel

PURPOSE

The purpose of this Banking Circular is to alert national banks to the
importance of performing financial reviews of organizations providing data
processing services and to set forth OCC policy regarding the subject.

BACKGROUND

Financial institutions have become increasingly dependent upon computers
for daily operations and must assure themselves of continued,
uninterrupted data processing support. Many institutions use external
(independent) data processors to provide such support.

Due to financial problems, several data processing servicers have failed
and others have weakened, to the extent that their ability to continue
operations and/or provide dependable services is uncertain. In many
instances, the serviced financial institutions were unaware of the
servicer's financial problems, and as a result, were unprepared for the
data center's failure or the data center's inability to provide an
acceptable level of service.

DISCUSSION

Financial institutions can reduce the potential impact of a data center
failure by being informed of the financial condition of their servicers.
Once aware of financial problems or an inability to provide an acceptable
level of service, a financial institution could engage in alternative
servicing arrangements and avoid an interruption in its data processing
support. An effective method of obtaining financial information is to
require, in the contracts between financial institutions and servicers,
that current financial information be submitted on a regular basis.


POLICY

A Board of Directors or a committee thereof in order to satisfy its
fiduciary responsibilities regarding data processing services would
normally obtain and analyze the financial information of their data
processing servicers on an annual basis. Audited, unconsolidated financial
statements would facilitate the analysis. If a servicer's financial
condition is deteriorating or unsound, alternative servicing arrangements
should be considered in order to assure continued data processing support.
Prudent banking practices would normally include the documentation of such
analysis/contingency plans. For more information on Contingency Planning
for Electronic Data Processing Support, See Banking Circular #177.

ORIGINATING OFFICE

EDP Examinations Division, (202) 447-0468.


John F. Downey
Chief National Bank Examiner

Date: January 18, 1985