The Bank for International Settlements (BIS) yesterday said the change of millennium was the biggest potential challenge for the financial industry and called for urgent action to ensure all computer applications could handle it. The bank to the world's central banks said failure to address the issue in a timely manner could cause banks to experience operational problems, bankruptcy or disruption to financial markets.

The Basle Committee on Banking Supervision, the BIS-based body that groups banking supervisors from the Group of 10 (G10) leading economic powers, has set up a six-point action plan to help small and large banks tackle the issue.

"The Year 2000 issue is potentially the biggest challenge ever faced by the financial industry. Every automated system, including equipment with computer chips embedded inside, is potentially at risk and must be analysed and renovated or replaced if needed," the Basle Committee said in a statement.

The problem arises because many computer programmes identify the year by the two last two digits. Year 2000 will thus be interpreted as year 1900.

Banks now rely heavily on automation and if this failed, it would be difficult, if not impossible, to conduct business, the committee said.