Alert September 23, 2008

Federal Banking Agencies Announce That They Are Evaluating FASB Accounting Proposals Related to Securitization and Structured Finance Activities

The FRB, FDIC, OCC and OTS (the “Agencies”) announced that they are evaluating proposed amendments (the “Proposed Amendments”) to generally accepted accounting principles related to accounting treatment of securitization and other structured finance activities.  Specifically, the Proposed Amendments being reviewed by the Agencies are proposed changes to the Financial Accounting Standards Board’s (“FASB”) FAS 140 concerning “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” and FIN 46(R), a FASB interpretive ruling concerning “Consolidation of Variable Interest Entities.”

The Proposed Amendments would eliminate the concept of a qualified special purpose entity (“QSPE”) from FAS 140 and require that variable interest entities previously accounted for as QSPEs be analyzed to determine whether they must be consolidated in accordance with Fin 46(R).  Moreover, the Proposed Amendments would revise the criteria for reporting a transaction as a sale rather than as a financing.  Furthermore, the Proposed Amendments would modify FIN 46(R) guidance concerning which enterprise, if any, would consolidate a variable interest entity.  Finally, the Proposed Amendments would require banking organizations to make additional disclosures concerning securitization and other structured finance activities.

The Agencies stated that they are evaluating the Proposed Amendments to determine the potential impact that the Proposed Amendments could have on banking organizations’ financial statements, regulatory capital, and other regulatory requirements.  The Agencies did not announce a deadline for the completion of their review of the Proposed Amendments.