In 1996, the Bank established a steering committee to oversee the reliable transition to the year 2000 for the Bank’s computer systems. The Bank established a target to have its internal mission critical systems modified and tested for Year 2000 compliance by December 31, 1998. At October 31, 1998, all such domestic systems had been modified and tested in a Bank-wide integrated test environment. Additional remediation identified from the integrated testing was completed by December 31, 1998. Almost all of the mission critical systems in Investment Banking and International Banking had been modified or replaced and tested by December 31, 1998. Any remaining systems modifications or replacements are scheduled to be completed well before the year 2000.

The success of the Bank in minimizing the impact of the Year 2000 issue and ensuring a reliable transition, also depends on the readiness of external parties with which the Bank deals to address this issue. These include payment systems, financial exchanges, other financial institutions, securities depositories, telecommunication companies, government agencies, data processing companies and networks in Canada and worldwide. Plans for fully integrated testing with key external parties have been developed and such “street wide” testing is scheduled throughout 1999.

By modifying and replacing internal Bank systems, monitoring the readiness of key external parties, and developing both specific system and overall business contingency plans, the Bank believes it is mitigating the risk of the Year 2000 issue. However, it is not possible to be certain that all aspects of the Year 2000 issue affecting the Bank, including those related to the efforts of customers, suppliers or other third parties, will not materially and adversely affect the Bank.

The ability and readiness of the Bank’s customers and counterparties may impact credit risk. Any failure of customers to fully address the Year 2000 issue may result in increases in impaired loans and provisions for credit losses in future years. At this time, it is not possible to estimate the amount of such increases, if any.

The expected total cost to the Bank of implementing the Year 2000 project is $160 million, of which approximately $100 million had been spent to the end of fiscal 1998. Of this, $80 million has been charged to income, with $20 million being capitalized, representing assets to be depreciated over their estimated useful lives.