Riggs National Corp. is installing a PC-based profitability measurementsystem from Sendero Corp. The system called Funds Transfer Pricing, allows interest rate risk from differnet branches, business lines, or departments to be allocated.
Gail O'Neil, vice president of profitability reporting and cost accounting at the Washingtonbased banking company, said the system is designed to provide management with better information for decisions.
"We are overhauling or enhancing our business profitability modeling," she said. "We felt we needed a sophisticated system that will [measure] margin contributions by business units. The Funds Transfer Pricing system should allow us to measure our interest rate risk better and monitor it more."
Installation of the system at the $5 billion-asset bank is slated to be completed by yearend.
"The finance department is developing the system but we are producing results for all business units," said Ms. O'Neil.
Officials said the system eventually will be used to measure product profitability as well.
Since 1985, Riggs has used asset/liability management simulation models from Sendero, a subsidiary of Milwaukee-based Fiserv Inc.
Ms. O'Neil said the asset/Iiability system, which monitors interest rate risk throughout the bank, will work in conjunction with the new system, which "strips interest rate risk out of the business units."
Riggs is a multibank holding company with affiliates in Washington, Virginia, Maryland, the United Kingdom, and France.
Officials at Sendero noted that the system employs socalled match-funded transfer pricing.
This method allows a branch or a department to pass the interest rate risk into another area where the risk can be hedged.
Other benefits of the system include the ability to determine which products or services are unprofitable, and provide better information with which to make pricing decisions.