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NORWALK, Conn. – Some key decisions were recently made by the Financial Accounting Standards Board on how loan participations would impact credit unions’ books. At issue is FASB’s proposal, Statement No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, which seeks to specify the conditions under which a qualifying special-purpose entity (QSPE) is permitted to issue beneficial interests with maturities that are shorter than the maturities of the assets held by the qualifying SPE. FASB is also proposing to roll over those beneficial interests at maturity; clarify or amend other requirements of Statement 140 related to commitments by transferors, their affiliates, and their agents to provide additional assets to fulfill obligations to the beneficial interest holders; and address other issues related to transfers of financial assets that arose during deliberations of the amendment of Statement 140. Specifically, credit unions and other financial institutions would see how loan participations should be conducted to qualify for accounting treatment as a sale. “Sales accounting treatment is advantageous because it allows a financial institution to deduct the transferred portion of the loan from its balance sheet,” said Scott Waite, senior vice president/CFO at $3.5 billion Patelco Credit Union. Waite also serves on FASB’s Small Business Advisory Committee and CUNA’s Accounting Task Force. “If the loan is a member business loan, this treatment would keep the institution from bumping up against its MBL cap as quickly,” he added. If a loan participation does not qualify for sales accounting treatment, it would have to be shown on the books as a collateralized borrowing subject to the MBL cap, Waite said. In this case, a QSPE, such as a CUSO, would be needed to transfer the participation. At the board meeting, FASB determined that in order to receive sales treatment, the loan participation must pass a “true-sale-at-law” test rather than simply receive a “true-sale-at-law” opinion provided by an attorney. FASB expects to issue a revised exposure draft, which would include all of the proposed amendments to Statement 140, in the second quarter of 2005. [email protected]

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