Companies (Banks) and Fair Value

I recently got a question on the availability of Fair Value data for Banks. Fair value is defined as: a rational and unbiased estimate of the potential market price of a good, service, or asset. It takes into account objective and subjective factors to arrive at the fair value of an asset or liability. In accounting, fair value is used as a certainty of the market value of an asset (or liability) for which a market price cannot be determined (usually because there is no established market for the asset). Under US GAAP (FAS 157), fair value is the amount at which the asset could be bought or sold in a current transaction between willing parties, or transferred to an equivalent party, other than in a liquidation sale.
More information on the concept of Fair Value, as opposed to the historical value, is available here. Three levels can be distinguished:

  • Level One: The preferred inputs to valuation efforts are “quoted prices in active markets for identical assets or liabilities,” with the caveat that the reporting entity must have access to that market.
  • Level Two: This is valuation based on market observables. The second arises when the owned assets and owed liabilities are similar to, but not the same as, those traded in a market.
  • Level Three: This is a valuation based on “unobservable.” If inputs from levels 1 and 2 are not available, this category allows for situations in which there is little, if any, market activity for the asset or liability at the measurement date. The “observable inputs” are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.

The following databases carry fair value data: Compustat, Datastream and Bankscope.

The Compustat North America Fundamentals Annual & Fundamentals Quarterly databases have some Fair value variables. Compustat Global databases do not have any of these. The Compustat database Bank Fundamentals Annual and Bank Fundamentals Quarterly databases also have the following items:

  • Fair Value of Options Granted
  • Total Fair Value Assets
  • Total Fair Value Changes including Earnings
  • Total Fair Value Liabilities.

Datastream covers some limited information but not much is available for most companies. A separate license is required for some of the data items which are not included in a default subscription to WorldScope (annual report data source). The more commonly availabe variable here is: Fair Value of Options Awarded. A list of currently available datatypes / variables is available here:

The database Bankscope covers banks worldwide and includes many more data variables that are related to Fair Value. This includes  Fair Value variables for Total Assets, Total Libailities and changes. In addition, there are also separate level 1,2 & 3 variables for both total assets and total liabilities. See screenshot for an example:

N.B.: In Bankscope you first make a selection of banks. When you have called up a list of these banks you can change the list presentation to include any available variables by clicking the button Columns (in the middle of the screen) or the button Add (to the right side of the list).


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