FASB Statement 166 and Commercial Loan Participations

Outline

1. Changes in FAS 166 relevant to loan participations
   1. Addresses concerns that many financial assets no longer recognized should continue to be reported in transferor’s financial statements
   2. New standard for “participating interest” as specific conditions for reporting transfer of portion of financial asset as sale rather than borrowing
      1. Institutions selling loan participations must meet “participating interest” definition and FAS 140 surrender of control
      2. Which provisions of loan participation agreements that previously qualified as sales don’t qualify as participating interests
   3. Removes concept of qualifying special-purpose entity from FAS 140 and removes FAS 46 exception for those entities
      1. Formerly qualifying special-purpose entities must be re-evaluated for consolidation
2. New disclosures required in financial statements
   1. Greater transparency about transfers of financial assets
   2. Greater transparency about transferor’s continuing involvement with asset transfers accounted for as sales
3. Practical FAS 166 accounting considerations affecting all entities involved in loan participations

Benefits

The panel will help you make sense of these and other key aspects of FASB's new standard affecting loan participations:

• Meeting the new standard for "participating interest": What structures will pass the twin tests of meeting conditions for both participating interest and surrender of control?
• Handling special-purpose entities: Will previously independent SPEs now need to consolidate?
• Producing required disclosures: How should financial institutions report transfers of financial assets and any continuing involvement with transfers accounted for as sales?