Commerce Bancorp of Cherry Hills, N.J., knew it had a more solid asset- liability mix than it was given credit for. It just didn't have a way of proving it.

Now it says it does.

With the help of a Scottsdale, Ariz.-based consultant, the $2.5 billion- asset bank has implemented an advanced method of determining the value of its core deposits.

Everyone talks about asset quality, but Commerce says it has found a way to figure deposit quality.

"The thrust of what we've done here is that most banks have been using only assumed deposit value, but we've been able to determine our actual deposit premium value based on a mathematical analysis of our deposit history," said Vernon W. Hill 2d, chairman of Commerce.

The methodology was developed by economists William J. McGuire and Richard G. Sheehan in conjunction with Commerce.

Another bank is also said to be using it, and Mr. McGuire said half a dozen other banks are also interested.

Mr. McGuire, who worked for the Federal Home Loan Bank of Cincinnati and is an author on interest rate risk, started his own consulting firm in Scottsdale about 18 months ago.

"This is part of the evolution of asset-liability management," he said. "So far banks have been required to conduct interest rate assessments without the full value of their balance sheets. But they need to be able to talk to regulators not just about their assets but about the other 50%, sometimes 70%, of their funding - core deposits."

The more precise measurement of deposit value will allow banks to make more informed investment decisions, in addition to better understanding deposit behavior in different rate environments, Mr. McGuire said. All of this can enhance asset-liability management, he said.

What separates his methodology from previous core deposit valuation models is its examination of the relationship between balances, rates paid, and retained balances for all deposit accounts at a given institution over a period of years.

Previous models typically look only at average deposit levels year to year.

"There may be only a handful of other banks that have gathered the data in the detail that we have and then applied a statistical methodology that's as robust as the one we have here," said Jamie Newell, who became Commerce's chief investment officer last spring after serving the bank as a consultant on asset-liability management.

Mr. Newell previously worked at First Boston as a manager in its portfolio strategies group. He said none of the large banks he researched had such comprehensive methodologies.

Commerce began looking into the new approach more than two years ago, after an article in the American Banker listed the bank as having one of the highest interest rate risks in the country, Mr. Newell said. That unwanted attention and the consequent increased regulatory scrutiny put the bank on a mission: to prove that its core deposits were not being properly accounted for.

"After the shellacking in the American Banker, you could call it a worst-to-first story," Mr. Newell said.

The bank has not disclosed the results of the study, but officials said it reinforces their belief in Commerce's "superior franchise value."

What the study takes into account, among other things, is that though asset values slide as rates rise, the value of Commerce's deposits rises - and by more, in fact. As a result, the bank is less exposed than the standard models indicated, Mr. Hill said.

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