Magazine article American Banker

How Have Asset-Liability Regulations Affected Asset-Liability Management Software?

Magazine article American Banker

How Have Asset-Liability Regulations Affected Asset-Liability Management Software?

Article excerpt

ANTHONY F. KUMMERL Vice president of asset-liability management advisory services SunTrust Banks Inc., Atlanta

The evolution of asset-liability software is a result of guidance from forward-thinking bankers, input from the industry's leading experts in asset-and-liability management, enhancements in computer technology, the integration of ancillary financial software packages, and the introduction of new financial instruments.

Asset-and-liability regulations continue to shift an inordinate amount of the software industry's development resources in the direction of meeting regulatory requirements.

This trend significantly reduces the amount of resources devoted to improving the software and strengthening the software's ability to measure and manage interest rate risk and earnings.

DENNIS BENNETT President Bennett Management Services Inc. Phoenix

All the software available today offers these three main features: single income forecast, duration and market values, and parallel rate shocks.

That's because that's what the regulators say you must have. You have to be able to do duration and market value to meet FAS 107, the market value accounting standard that's being adopted by the Financial Accounting Standards Board.

So what's happening today is, you've got regulators saying you have to do more-sophisticated analysis, and it's no longer okay to buy shelfware - software that sits on a shelf unused.

A lot of innovations in asset-liability management software have occurred because the regulators demand it. Bennett's product, which came on the scene in 1991, was not regulation-driven when it was developed. But the regulators really like this product, so it has become the product to emulate.

BLAIR BINGHAM Vice president of funds management, Deposit Guaranty Bank, Jackson, Miss.

Regulation is affecting asset-liability management software in that more attention is being focused on the interest rate risk of financial institutions. This attention is due to the increasingly complex nature of the financial services industry. I Therefore, to satisfy regulatory standards, models must be more responsive and flexible to reflect the dynamics of a financial institution's balance sheet.

Furthermore, regulation, in its attempt to be inclusive of all banks, forces models to include minimum standards of output that have little relevance to institutions with more-sophisticated balance sheets.

WILLIAM J. MCGUIRE Senior vice president Sendero Corp. Scottsdale, Ariz.

My first thought is that asset-and-liability management software has to become more sophisticated to meet higher demands from regulators. Specifically, the software must provide market value and duration calculations.

Since regulations change so quickly, vendors must provide more frequent updates of asset-and-liability management software just to keep up. The good thing is that vendors can use these regulatory updates to bring additional enhancements to the users on a more timely basis. …

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