When the Financial Accounting Standards Board issues its new rule on the disclosure of derivatives on Oct. 1, banks will have little trouble complying.

But though many banks already disclose much of the information the board will require, some industry observers feel that increased disclosure was prompted by a fear that bank stocks would be hurt if information on derivatives was not made available to investors.

Observers agree that more disclosure is good for the banking industry, so long as what is disclosed is meaningful.

The rule to be released in October won't be dramatically different from the one proposed in April, according to Don Nicholaisen, a partner in the New York accounting firm Price Waterhouse. "The belief was that bank stocks would be penalized if derivatives holdings weren't known.

"It gives us a better understanding of what's there."

The disclosure regulation is aimed at all businesses and not-for-profit organizations and will be effective for calendar-year 1994 financial statements. However, institutions with less than $150 million of assets have until calendar 1995 to comply.

For derivatives held for trading purposes, the FASB role will require disclosure of the "average fair value balance" of those positions, as well as the net gains or losses occurring from the trading activity. The role will also call for the identification of the specific instruments that cause the loss or the gain.

For instruments used by banks for asset management, the FASB role will require the disclosure of "the objectives for holding the derivatives," how they are reported on financial statements, and hedging of anticipated transactions.

"We believe an institution should disclose how much of their money is at risk, not just their derivatives holdings alone," said Hannah Sorscher, global vice president of derivatives at Citicorp and co-leader of the International Swaps and Derivatives Association's disclosure committee.

"We see this as an evolving process," she said. "You want to look at the whole risk management of a bank. We believe that more disclosure is better if the information is useful."

Price Waterhouse's Mr. Nicolaisen agreed. "Derivatives are the subject of every board meeting that I go to," he said. "For FASB not to do something would be irresponsible."

He also noted that the market is changing so fast FASB will have to constantly adjust. "The focus is really going to shift to the accounting for derivatives," he said. "That will be followed closely in the year ahead. There is different accounting for hedging and asset management."

He also said the accounting standards board is now considering new rules for hedge accounting practices. "The disclosure document we're looking at here is just an interim stopping point," said Mr. Nicholaisen. "Hedge accounting is on the docket right now. It's still high on everyone's priority list. It will take a while, though. There are different views On what accounting models should be used."

Ms. Sorscher said voluntary disclosure will increase as well. "The risk side certainly is evolving," she said. "Firms have gotten better at risk management. You'll see more and more disclosure on a voluntary basis."

Standard and Poor's Corp. says the ruling goes a long way toward improving disclosure -- but not far enough. "While S&P recognizes recent improvements in the way companies disclose information about derivatives to the public, still-developing accounting standards and a lack of uniformity in financial reporting have left fundamental gaps, according to the rating agency's newsletter.

Derivatives Disclosure

Must include:

* Fair value of instruments

* Net gains or losses from trading

* Objectives for holding derivatives

* Amounts, nature, and terms of holdings

Source: Financial Accounting Standards Board

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