WASHINGTON Federal regulators issued guidelines Tuesday on how banks and other financial institutions should account for impaired loans that they plan to sell.
The guidelines apply to loans by banks, thrifts, or credit unions that were not originated with the intention of being sold, and which have declined in value for reasons other than a drop in interest or foreign exchange rates.
In issuing the guidelines, regulators said that selling loans has become an increasingly important risk management tool but that bankers have not uniformly accounted for such transactions.
Specifically, accounting inconsistencies relate to how and where initial and subsequent fair value adjustments are recorded, and the reporting of past-due and nonaccrual loans that have been designated as held-for-sale, the agencies release stated.
Bankers were advised to put the impaired loans they intend to sell into a held-for-sale account, and then write down their value to either cost or fair value, whichever is lower.
At the same time banks are supposed to take a charge against their allowances for loan and lease losses. Loans transferred to a held-for-sale account should continue to be accorded the same past-due and nonaccrual treatment as other loans, the guidelines said.
The guidelines were issued jointly by the Office of the Comptroller of the Currency, the Federal Reserve Board, the Federal Deposit Insurance Corp., the Office of Thrift Supervision, and the National Credit Union Administration, and were to be posted on each agencys Web site.
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