Two compliance firms with services designed to help banks manage interest rate risk say business is booming.
Farin & Associates says its sales have increased roughly 50% in the past six months, with about 100 banks using its Strategic Asset/Liability Model program, which it calls SAM.
Risk Analytics, owned by Sheshunoff Information Services in Austin, Tex., has seen its customer base double to more than 200 since the first of the year.
"We've seen a vast increase in sales recently," said Christopher A. Acker, senior vice president at Farin in Madison, Wis. "People are seeing how helpful these products can be. They let bankers try out various things in a model to determine what the effects will be."
Farin's SAM and Risk Analytics' Interest Rate Risk Management Service each give banks a hands-on way to determine risk. Both products let banks take current portfolio data and adjust the interest rates to simulate the effect on earnings and capital.
For example, banks can see the ramifications of a 200-basis-point shift in interest rates. They then can change the rate, or their types of investments, to get an idea of how the value of their portfolio would be altered by economic or strategic decisions.
Douglas Borchardt, executive vice president of Brenham National Bank in Brenham, Tex., said these products are important because regulators are stressing banks' ability to manage risk.
Rate risk has been a hot issue with examiners. The banking agencies released guidelines in late May that require banks to establish formal risk-control policies, identify potential problems, and periodically review their efforts.
Robert Colvin, managing director with Risk Analytics, said knowing how changing interest rates would affect a bank's portfolio is crucial to managing risk.
"If a bank doesn't have something to simulate changes, it doesn't have a good enough grasp on risk," Mr. Colvin said.
SAM lets banks do all this analysis in-house.
Risk Analytics' customers ship data to the Denver-based firm on disk or through electronic mail. Within three business days, it sends a written analysis of the bank's equity, liquidity, and capital. Banks also can get an updated disk that lets them adjust interest rates, types of holdings, and other variables to study risk further.
Risk Analytics also evaluates changing interest rates' effect on each individual security a bank holds. Randy Rouse, vice president at First National Bank of Farmington, N.M., said the extra information that Risk Analytics provides makes the service worth the wait.
"They give so much information," said Mr. Rouse. "At some banks it would take a full-time person to feed all the data into the computer and do all the analysis. Most banks don't have the time or money to do that."
Both products are geared to smaller banks. Farin offers three versions of the product, ranging from $2,700 to about $10,000. Sheshunoff's service price varies from $2,000 to $15,000 per year, depending on the size of the bank and how often the data are analyzed.
Sheshunoff is owned by Thomson Financial Services, the same company that owns American Banker.