A new wrench has fallen into the FAS 140 amendment project. The Financial Accounting Standards Board has reportedly postponed decisions related to the amendment until several issues are clarified.
Last week, FASB had planned to discuss different types of financial asset transfer arrangements to establish a solid differentiation between the terms “undivided interest” and “beneficial interest,” for purposes of deciding whether a QSPE is necessary. This issue arose last fall during the post-comment redeliberations on the draft of the amendment to 140.
Instead, the board discussed how a “right of offset” might impact legal isolation in connection with loan participations, according to comments on the meeting from Marty Rosenblatt of Deloitte & Touche.
The board will defer decisions on the amendment to 140 until the issue is settled. The question, according to Rosenblatt, is whether the bank regulators – specifically, the Federal Deposit Insurance Corp. – can legally offset a borrower’s deposit account in a banking institution that extended credit to that borrower, if that bank has entered into FDIC receivership. Also in question: Can the borrower legally offset his/her own deposit account if the bank is in receivership? If so, what would the implications be for the investors in the loan participation? Would the insertion of a FAS 140 QSPE create different rights?
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