FOUR VENDORS HAVE banded together to develop products aimed at helping banks comply with complex new regulatory and accounting rules.
Under the changes, banks will be required to determine the market value of their assets and liabilities, as well as calculate how interest rate swings would affect capital levels.
The vendors, led by Sheshunoff Information Services Inc., said they have come up with two low-cost tools tailored to help community banks navigate their way through the regulations, which are to be phased in over the next few years.
"These rules will be a sea change for banks," said Con A. Rusling, president of Sheshunoff. "The old ways of managing the balance sheet aren't going to fly anymore."
Similar services are likely to spring up, said Ed Furash, president of Furash & Co., a consulting firm in Washington. The rules will make life "infinitely more complicated for banks that don't have the expertise and resources to deal with them," he said. "Many small banks won't be able to comply with the new rules if they don't have help with the mechanics involved."
Here's how the Sheshunoff products work: Customers supply information about loans, securities, and deposits each quarter on a diskette to Sheshunoff, which analyzes the data and supplies printed reports containing the figures needed for regulatory filings.
One product, the Sheshunoff Market Volatility Service, determines how changes in interest rates would affect capital levels and analyzes the market value of investment portfolios.
The other one, Sheshunoff FAS 107 "Fair Value" Service, calculates the current value of all assets and liabilities.
Sheshunoff will charge $3,000 a year for either service or $4,000 for both. It plans to market the products primarily to banks with assets of less than $1 billion, but said larger banks have also shown interest. Mr. Rusling said the relatively low prices reflect that fact that Sheshunoff and its partners think there will be heavy demand for the services.
The other participants, which will help analyze the data, are RAF Financial Corp. of Denver, an analytical firm; Trepp & Co., which is based in New York and specializes in asset-backed financing; and Asset Backed Securities Group, a New York unit of Thomson Financial Services.
Sheshunoff, based in Austin, Tex., and Asset Backed Securities Group are affiliates of the American Banker. The revisions to bank accounting rules were required by the Financial Accounting Standards Board and the Federal Deposit Insurance Corp. Improvement Act of 1991.
Financial Accounting Standard (FAS) 107 requires banks to disclose in financial statements an estimate of the fair value of all assets, liabilities, and off-balance-sheet items. Banks with assets of more than $150 million must comply with the rule by Dec. 15; others have until Dec. 1, 1995.
Regulations implementing the '91 law are expected to require banks to report most, and possibly all, of the FAS 107 information in call reports.
A second accounting rule, FAS 115, requires banks to put securities in one of three accounts: available for sale, trading, and held to maturity. Securities in the first two accounts must be marked to market value. The rule applies to all banks and is effective for fiscal years starting after Dec. 15.
The law also will require banks to project in call reports the impact of interest rate swings on earnings and equity value. The provision is slated to take effect on Dec. 31, but implementing regulations have not yet been adopted.
FDICIA also requires all banks to establish operational and managerial standards relating to interest rate risk. Banks are required to determine the minimum amount of earnings needed to absorb losses without impairing capital, and a minimum ratio of market to book value. The implementing regulations must be issued by the end of the year.
Mr. Furash, the consultant, said that "there's a pervasive fear among bankers at the smaller institutions that they will be guilty of technical violations because they overlooked a detail or turned in inappropriate calculations."
However, he warned that chief executives should not assume they are off the hook just because outside firms are performing the required calculations. "No bank should rely on the assurances of a third-party vendor, because none will assume responsibility for a bank being in error," he said.