Financial Update (October-December 1997)

Editor's note: In 1999, the Federal Reserve System ended its 42-year-old functional cost analysis (FCA) program.

New Functional Cost and Profit Analysis

T he Federal Reserve recently revised its Functional Cost and Profit Analysis (FCA) program to provide depository institutions nationwide a more efficient resource to manage cost accounting and financial information.

FCA helps depository institutions improve operational efficiencies, provide solutions to better manage operations for profitability and compare performance versus competitors. While the Fed program has provided depository institutions important accounting and cost control management information at a modest price for 40 years, the program has evolved over time to meet the changing demands of the nation's financial system. Recently, the Fed revised FCA again to meet marketplace demands.

New Program Offers Options for Customers

As part of the revised program, the Fed is offering two new versions of FCA — a basic package for smaller institutions, or those unfamiliar with cost accounting, and a more advanced version for institutions with higher-level cost accounting experience. FCA Basic is a simplified version of the FCA product that provides depository institutions a method to start a cost-accounting and product-profitability system.

Another version, FCA Plus, provides institutions more detailed information, such as in-depth analyses and more specific product information. FCA Plus also offers useful "what-if," break-even, customer profitability and interest rate sensitivity analyses.

The Fed worked directly with financial institutions and private industry experts to develop specifications for the new products.

Participating Depository Institutions

Once a year, each depository institution enrolled in the program submits data to the Fed. This information is used to create a detailed report specific to each institution. The customized report presents practical information that can be used to analyze the institution's income and expenses in key operating areas.

The service can help answer questions such as, Are we spending too much in certain functions? or Are we charging enough for our products or services? The report also compares a specific institution's current profitability with a select group of peers. FCA participants also receive the National Average Report free of charge. This report, which is also available to non-FCA participants for a fee, allows depository institutions to compare their performance with other participating institutions nationwide.

To obtain more information on the FCA program or for assistance with the program's data collection process, contact Sylvester Johnson at (404) 498-8672.

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