FASB Clears Loan Purchase Accounting Rule
The Financial Accounting Standards Board (FASB) has approved an accounting change that would require banks to account differently for loans that they purchase than for loans they originate. Purchased loans must be reflected on the balance sheet at acquisition cost, rather than contractual value. Since the loans would have been purchased at their fair value, the originator's loss reserves associated with the loans can not transfer to the purchaser's books. Thus, at least at the time that the loans go on the purchaser's books, there would be no allowance for loan losses on purchased loans. FASB approved the change in voting to clear the AICPA's Statement of Position, Accounting for Loans or Certain Debt Securities Acquired in a Transfer. The AICPA is expected to issue an exposure draft of the document for comment by the end of June. The change would take effect December 31, 2003.