WASHINGTON -- When the lords of financial accounting mandated new market value accounting rules, Marti Sworobuk swung into action.
Ms. Sworobuk, the accounting maven for the Savings and Community Bankers of America, has spent the past year pressing regulators to adopt a more relaxed standard for calculating capital. A new method, she said, is needed to offset the impact of the accounting rules.
On this and other issues she sees some storm clouds on-the horizon. Ms. Sworobuk is SCBA's top expert on accounting, derivatives, financial reporting, and profitability, and she's the one to see at the thrift group for questions or concerns about what nitty-gritty rule changes mean for the industry's bottom line.
In market value accounting, for instance, the new standard is needed to guard against wild swings in banks' capital levels produced by market volatility rather than by actual losses, she said.
The trouble on that issue started at the beginning of this year, when a new Financial Accounting Standards Board rule took effect. FAS 115 required institutions to account for their securities portfolios by putting them in one of three categories. They now must use market-value accounting to calculate the value of all but one of the categories -- the held-to-maturity category.
The result -- felt strongly this year as interest rates rose -- was that many institutions faced lower capital levels because of unrealized losses in their securities portfolios. Or they escaped that volatility by agreeing to hold the instruments until they matured, but lost the ability to manage much of their portfolio in reaction to market changes, she said.
All companies must follow the rule, of course. But thrift group wants regulators not to apply those changes when they determine institutions' capital levels. "It is a great concern of ours," Ms. Sworobuk said. "Capital is precious."
All four bank regulators have asked for comments on how to incorporate the new corporate accounting standards into regulatory accounting practices. The Office of Thrift Supervision is the only regulator that has been including unrealized gains and losses in thrifts' capital calculations while it develops a final rule.
That rule could come by the end of the year, and Ms. Sworobuk is hard at work to make sure the new accounting rule applies only to shareholders' equity, and not to regulatory capital levels.
Thrift supervisors are also ahead of the regulatory pack on incorporating interest rate risk into institutions' measurement of risk-based capital levels.
Ms. Sworobuk is working to get comparable rules from the other bank regulators, who have missed Congress' deadline for finalizing their interest rate risk rules by more than two years.
Not only does her group want thrifts to have a level playing field with banks, but Ms. Sworobuk also said all institutions' regulatory burden will bc lightened when regulators adopt a portfolio approach to risk management.
Ms. Sworobuk has a good feel for these issues, because she is a former regulator. From 1985 through 1989 she worked at the Federal Reserve, first for the Chicago Fed and then for the Board of Governors in Washington.
Ms. Sworobuk, just back from the thrift group's annual convention in Orlando, met last week with the accounting standards board and bank regulators to discuss thrifts' concerns about the board's proposal to change the way mortgage servicing rights are accounted for.
Her group generally supports the measure, but she is spearheading its efforts to fine-tune several of its provisions.
The proposal would allow thrifts to put originated mortgage servicing rights as well as purchased mortgage servicing rights on their balance sheets. SCBA favors it because it would streamline the accounting treatment for all mortgage servicing rights and, "It would improve the capital position of the industry," she explains.
After her stint with the Fed, Ms. Sworobuk was a commercial real estate lender at Crestar bank. She then spent two years at the Independent Bankers Association of America, where she worked on a range of banking policy issues. She plays golf and tennis, but perhaps her favorite hobby is renovating historic homes.
When she is not lobbying FASB, Congress, or regulators, Ms. Sworobuk answers institutions' questions about how best to comply with the complicated rule changes.
Many of their questions lately have been about derivatives, she said. Some thrifts call her to ask advice on which kinds of the complicated financial instruments are appropriate for them.
"What we tell our member institutions is not to hold any instrument that you do not understand," Ms. Sworobuk said. "Treat all investments, especially derivatives, as though you were underwriting a loan: understand the risks."