Banks' pounds 1bn headache

The banking sector could face a bill for more than pounds 1bn to stave off the threat of large-scale computer failure caused by the so-called millennium bug.

A large part of the cost will come from the labour-intensive process of checking and altering some of the millions of lines of code within central computer systems, some of which were written 25 years ago, to prevent them misunderstanding the date of the year 2000 and possibly destroying large amounts of data.

Banks will also have to check more modern computer-aided systems such as security cameras, time-lock devices and software.

Last week, Natwest admitted that it would have to spend pounds 100m over two years to prevent disruption of mainframe and desktop computers.

"Derek Wanless, Natwest's chief executive, disclosed the figure to demonstrate that the bank is prepared to confront issues, no matter how complex," Achi Racov, Natwest's chief IT officer, told the trade magazine Computing last week.

Barclays has put aside a figure of between pounds 60m and pounds 100m to upgrade its systems. Industry sources believe that the highest bill may be borne by Lloyds TSB, which will have to do more work to root out millennium bugs in the different Lloyds and TSB computer systems.

It is estimated that the costs of making the millennium changes at other banks will amount to between a third and a half of their annual IT budgets, which in the case of larger banks can amount to more than pounds 300m a year. Any project not already underway may not be finished in time.

Experts say de-bugging projects should be completed by this time next year, to allow for a year or more of testing.