examiners in the Office of Thrift Supervision are stepping up their scrutiny of thrifts' systems designed to analyze unit costs and profitability.
The goal is to have thrifts price products more accurately, so they can compete more effectively in markets such as mortgage lending where they face increased competition from commercial banks.
"As the marketplace becomes more competitive, we want the industry to improve its management of those variables that are within its control," said a senior OTS official for the western district, which covers states from Idaho to Hawaii. The official asked not to be named.
Most big commercial banks are working to improve the accounting techniques, performance standards, and computer systems used to generate profitability reports.
Reliance on Intuition
With revenue growth slow, bankers want to squeeze more profit out of the money that comes in. But smaller banks and thrifts tend to rely on their intuitive feel for whether a product or relationship is profitable, industry observers said.
One California thrift that is installing software to measure profitability said the most important aspect is to be able to do transfer pricing - accurately price the rates that are charged for funds and services sold to departments inside the bank.
An executive from the thrift, who asked not to be identified, said the OTS has increased its focus on the area. "Initially their concern was getting rid of the bad operators, but now the OTS is more concerned about the viability of the industry," he said.
The OTS official said the western district has submitted guidelines that would train examiners to look at a thrift's ability to accurately price assets and liabilities. The national office coordinates training for examiners in all the regions. Paul Lockwood, a spokesman for the OTS in Washington, said the regulatory agency is reviewing the draft.
A View to Total Profitability
The draft leads an examiner through procedures that help to determine if a thrift has made decisions on the asset and liability sides that take into account the profitability of the whole business.
While the drafted guidelines would not require an institution to use technology to measure profitability, West Coast examiners encouraged at least one local thrift to install special software, according to Steve Reich, marketing executive at Treasury Services Corp., Santa Monica, Calif., which develops software for profitability analysis. Examiners may be trained with the guidelines as early as the fall, the OTS official for the western district said.
"We've proceeded cautiously. I'm concerned that thrifts will say, here's another thing regulators are doing, now they want us to buy these systems. That's not the reaction I want them to have."