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FE D E R A L RESERVE B A N K
OF N E W YORK
Circular No.
9638
February 17, 1984
~|
J
INTERNATIONAL LENDING
— Rules Requiring Special Reserves and Quarterly Reports on Foreign Lending
— Proposals on Accounting for Loan Fees
T o A ll S ta te M e m b e r B a n k s , E d g e a n d A g r e e m e n t C o r p o r a t i o n s , B a n k H o ld in g C o m p a n i e s , a n d
B r a n c h e s a n d A g e n c ie s o f F o r e ig n B a n k s , in th e S e c o n d F e d e r a l R e s e r v e D is t r i c t :
Following is the text of a statement issued by the Board of Governors of the Federal Reserve System:
The Federal Reserve Board has announced adoption of rules to implement several sections of the International Lend
ing Supervision Act of 1983.
Two of the rules require banking organizations to aintain special reserves and authorize the Board to require submis
sion of quarterly reports on the foreign lending of banking institutions, including publication of material country exposure.
These rules will be effective upon publication.
In addition, the Board published for comment proposed rules respecting the accounting for fees associated with inter
national loans.
The three Federal banking regulators — Federal Deposit Insurance Corporation, Federal Reserve Board and Office of
the Comptroller of the Currency — are issuing the rules and proposals jointly, as one facet of a joint program to strengthen,
under the new law, the supervision and regulation of foreign lending by United States banking organizations. The Board’s
rules apply to state-chartered banks that are members of the Federal Reserve System and to bank holding companies and
Edge and Agreement corporations engaged in banking. Nonmember banks and national banks are covered by the rules of
the other agencies.
At the same time as it published its rules, the Board announced that it is holding open the period for comment on
questions whether the U .S . branches or agencies or commercial lending subsidiaries of foreign banks should be subject to
these provisions or other provisions of the Act. Therefore, the final rules being published do not at this time apply to these
entities.
The Board adopted its final rules under Section 905(a) of the Act after consideration of comment received on propos
als published in December. Section 905(a) requires banking institutions to maintain special reserves, out of current
income, against the risks present in certain international loans or other international assets, when the Federal banking
agencies determine that such reserves are necessary.
The principal elements of the rules under this section adopted by the Board are:
— A banking institution shall establish an Allocated Transfer Risk Reserve (ATRR) for specified international assets
(principally loans) when required under these rules.
— At least annually, the agencies shall jointly determine:
— Which international assets are subject to risks warranting establishment of an ATRR;
— The size of the ATRR;
— Whether an already established ATRR may be reduced.
The rules also set forth the criteria to be used in determining whether an ATRR is required, under two headings:
— Whether the quality of international assets has been impaired by protracted inability of borrowers to make
payments on their obligations, and
— Whether there are no definite prospects for restoring orderly debt service.
(OVER)
When required, the initial year’s ATRR normally will be 10 percent of the principal amount of the asset on which
reserves must be kept, or more, or less, as determined by the Federal banking agencies and, when required for subsequent
years, normally will be 15 percent, or more, or less, as the agencies determine. The rules specify the factors according to
which these amounts will be determined.
The Board will notify each banking institution it supervises of the amount of any ATRR, and if an ATRR may be
reduced. A banking institution may write down an asset in lieu of establishing an ATRR. If it does so, it must replenish its
allowance for possible loan losses to the extent necessary to provide adequately for estimated losses in its loan portfolio. An
institution may at any time reduce an ATRR to the extent of any write-down on its books of the value of the relevant asset.
The Board also adopted a rule setting forth the framework for requiring country exposure reports by banking institu
tions (under Section 907 of the Act). This rule provides that the Board will prescribe jointly with the other Federal banking
agencies the format, content, reporting and filing date of the reports. For this purpose, the agencies have initiated modifica
tions in the current Country Exposure Report form (FFIEC-009).
Proposals
The Federal Reserve Board also issued draft regulations for comment establishing uniform requirements for account
ing for fees on international loans (as required by Section 906 of the Act).
The comment period on these fee accounting rules closes March 9. Final rules are to be adopted no later than March
29, 1984.
The major provisions of the proposed fee accounting rules are:
1. No banking institution may charge any fee in connection with the restructuring of an existing obligation of the
borrower unless all fees exceeding the banking institution’s administrative costs of the restructuring are
deferred and recognized over the term of the loan as an adjustment of the interest yield.
2. Fees on international loans that represent yield adjustments shall be recognized over the expected loan period
using the interest method as an adjustment to yield.
3. To the extent fees represent a reimbursement of the banking institution’s identifiable administrative costs
associated with the loan syndication or loan processing, a portion of the fee equal to these costs shall be
recognized as income currently.
4. For managing banks in international syndicated loans, the proposed rules establish the following presump
tion:
That portion of the managing bank’s fees (other than commitment or agency fees) that is equal to the
proportion of fees in relation to loan principal received by the largest loan participant which is not a manager
in the syndication shall be considered an adjustment to yield.
5. Administrative costs are defined as those costs that are specifically identified with syndicating or processing a
loan (excluding general and nonassociated overhead-type costs).
6. Banking institutions shall account for commitment fees by recognizing the fee as revenue over the combined
commitment and loan period.
7. Agency fees shall be recorded as income at the time of loan closing or as the service is performed, if later.
E n clo sed — fo r S tate m e m b e r b an k s, b an k ho ld in g co m p an ies, and E dge and A g re em en t co rp o ratio n s in this
D istrict — is th e tex t o f the p ro p o se d am en d m en t to the B o a rd ’s R eg u latio n K , “ In tern atio n al B anking O p e ratio n s, ”
re g ard in g acco u n tin g fo r fees on in tern ational lo an s, to g eth er w ith the F ed eral R eserv e p o rtio n s o f the jo in t n o tice o f
p ro p o se d ru lem ak in g b y th e F ed eral b anking reg u lato rs. It w ill be p u b lish ed in th qFederal Register, an d ad d itio n al
copies w ill b e fu rn ish e d u p o n re q u est d irected to o u r C irculars D ivisio n (T el. N o. 2 1 2 -7 9 1 -5 2 1 6 ). C o m m en ts should
be su b m itted by M arch 9 , 1984 and m ay be sent to T hom as P. M c Q u e e n e y , A ssistan t C h ie f E x am in er in o u r B an k
E x am in atio n s D ep artm en t.
T h e fin al am en d m en ts to R egulation K on A T R R s and rep o rts on intern atio n al assets w ill b eco m e effectiv e
upon th e ir p u b licatio n in the
Federal Register and w ill be m ailed to you at that tim e. Q uestio n s th ereo n m ay be
d irec ted to M r. M cQ u e en ey (T el. N o. 2 1 2 -7 9 1 -7 9 3 4 ).
A nthony M . S olomon ,
President.
DEPARTMENT OF THE TREASURY
COMPTROLLER OF THE CURRENCY
[12 CoF0Ro PART 20]
FEDERAL RESERVE SYSTEM
[12 CoFoRe PART 211]
FEDERAL DEPOSIT INSURANCE CORPORATION
[12 C aF 0R o PART 351]
ACCOUNTING FOR INTERNATIONAL LOAN FEES
AGENCIESg
Comptroller of the Currency
Board of Governors of the Federal Reserve System.
Federal Deposit Insurance Corporation
ACTION?
Joint notice of proposed rulemaking
SUMMARY?
This proposal would establish uniform requirements
for the accounting for fees associated with restructuring cf
international lending arrangements and nonrefundable fees
charged by banking institutions in connection with other
international loans.
This proposal would implement one
aspect of the joint program of the Federal banking agencies
to strengthen the supervisory and regulatory framework relating
to foreign lending by U.S. banking institut ions, incorporated in
section 906 of the International Lending Supervision Act of
1983o
Regulations implementing this provision of law are
required to be issued by the agencies no later than March 29,
1984 o
[Enc. Cir. No. 9638]
DATE
:
Written comments must be submitted to the Comptroller of
the Currency on or before March 5, 1984 and to the Federal
Reserve Board and the Federal Deposit Insurance Corporation on
or before March 9, 19840
ADDRESS:
Federal Reserve System;
All comments, which should refer to
Docket N o 0 R-0509, should be mailed to William W. Wiles,
Secretary, Board of Governors of the Federal Reserve System,
Washington, D 0C o
20551, or delivered to C Street entrance,
20th and Constitution Ave., N.W., Washington, D„C0 between
the hours of 8:45 a 0m 0 and 5:15 p.m. weekdays.
All comments
received will be available for inspection in Room B-1122
between 8:45 a<,ro and 5:15 p 0m<, weekdays.
FOR
FURTHER
INFORMATION
Federal Reserve System:
C O N TA CT :
Michael 0 o Martinson, Projects Manager,
International Activities, Division of Banking Supervision and
Regulation,
(202/452-3621 ); or Stanley C D Weidman, Senior
Accountant-Analyst, Division of Banking Supervision and
Regulation (202/452 =3502) ; or Nancy P Q Jacklin, Assistant
General Counsel (202/452-3428) ? Kathleen O'Day, Senior Counsel,
Legal Division (2C2/452-3766) .
SUPPLEMENTARY INFORMATION:
The banking agencies are jointly proposing for public
comment regulations which would specify the accounting for
international loan fees in order to achieve uniformity among
banking institutions in accounting for such fees and to assure
2
that the appropriate portion of such fees is accrued in income
over the effective life of the relevant lean.,
The proposed
rules implement section 906 of the International Lending
Supervision Act of 1983 (Title IX, Pubo L 0 98-161, 97 Stat.
1153) ("Act"), directing the Federal banking agencies to
promulgate regulations on the accounting for various fees
received by banking institutions when restructuring and making
international loans„
Background
In connection with international loan agreements, including
agreements to restructure prior loans, banking institutions
often receive various nonrefundable fees in addition to interest
chargeso
These fees are identified by a variety of terms, and
are intended for a variety of purposes?
for example, a flat fee
added specifically to increase the yield of the loan? a fee
designed to cover costs associated with syndicating a loan
(eogc, for structuring and negotiating a loan package,
underwriting a syndicated loan, advising the borrower)? a
fee to cover the costs of committing funds on the prescribed
terms for a fixed period of time? or a fee for serving as agent
in administering a syndicated loanD
In addition, the loan
agreement frequently provides that the managing bank(s) is
(are) to be reimbursed for all out°of-pocket expenses incidental
to the arrangement of a credit facility.,
Similar provision is
made for the agent bank for loan collection or enforcement costs„
3
As discussed further below, the existing accounting
literature provides only very general guidance on the accounting
for such feeso
As a result, there are differences in the manner
in which banks have accounted for various fees associated with
international loanso
For example, some banks have deferred fees
and amortized them to income over the life of the loan while
others have recognized in income an amount equal to direct
costs incurred and deferred the remainder.
Still others have
recognized such fees as current income when the loan is made.
General guidance as to the accounting recognition of loan
fees is provided in the recent revision of the American
Institute of Certified Public Accountants (AIPCA) Industry Audit
Guide, Audits of Banks (“'Bank Audit Guide61) (1983) at pages
52-55o
As to commitment fees, the Bank Audit Guide in part
states s
“'Banks have recorded income from commitment fees in a
variety of ways including recognitions
(a )
in full when received.
(b)
when the commitment period has expired or
the loan has been drawn down.
(c)
ratably over the commitment period.
(a)
ratably over the combined commitment and
loan period
The accounting for recognition of income from commitment
fees should be based on the nature and substance of the
4
transactions*
However, a bank"s method of accounting
should ensure that any income that represents an
adjustment to the interest yield is deferred until the
roan is drawn down and then amortized over the expected
life of the loan in relation to the outstanding balance.
Fees representing compensation for a binding commitment or
for rendering a service in issuing the commitment should
be deferred and amortized over the commitment period using
the straight-line method* 01
The Guide does not directly address questions of fees for
international loans* but discusses "origination fees" as follows
"Banks also receive fees for originating loans in-house*
The normal origination fee (generally referred to as
points) is essentially a reimbursement for the expenses of
the underwriting process* that is* processing the loan
application* reviewing legal title to the collateral*
obtaining appraisals* and other procedures*
Origination
fees* to the extent they are a reimbursement for such
costs* should be recognized as income at the time of loan
closing*
Loan origination fees that are not
reimbursements of such costs should be amortized to income
over the expected loan period by application of the
interest method*"
Because existing generally accepted accounting principles
(GAAP) do not provide explicit requirements for fees received in
5
connection with a loan, the AXCPA formed a task force to prepare
an issues paper addressing the accounting for such fees„
The
issues paper was presented to and considered by the AICPA's
Accounting Standards Executive Committee (’“AeSEC01), which voted
on the task force recommendations and forwarded this information
on September 21, 1983 to the Financial Accounting Standards
Board (FASB) for consideration.
The FASB, which establishes
GAAP, has not yet acted on these recommendations.
In the event either the FASB issues a final pronouncement
or standard or the AICPA issues a Statement of Position on the
subject, the banking agencies will reexamine their regulations
to assess the need for modification.
The Federal banking agencies and the Congress have
considered the lack of consistency among banking institutions in
accounting for fees associated with international loans and
determined that more explicit and uniform guidance is
desirable.
In particular, accounting practices should net
result in artificial incentives for banking insitutions to make
international loans premised on the immediate recognition of all
fee income.
As a result of Congressional consideration of these
matters, the Federal banking agencies are directed under section
906 of the Act to issue regulations to establish the accounting
treatment of such fees and assure that an appropriate portion is
accrued as income over the effective life of each such loan.
Section 906(a) of the Act also prohibits certain fees in
connection with international loan -restructurings unless such
6
fees are recognized as a yield adjustment over the effective
life of the loan0
The effective life of the loan is generally meant to be the
ter® of the loan*
This may, however, differ from the -stated
loan period where, for example, a short-term loan is expected to
be rolled-over at maturity <, The Federal banking agencies .
intend, through the examination process, to oversee good faith
compliance with the Act and these regulations.
The proposed regulations are designed to carry out the
objectives of section 906 and provide more specific and uniform
accounting guidance relating to international loan fees.
Proposal
The Federal Financial Institutions Examination Council
(FFIEC) recently has adopted revisions to banking institution
Reports of Condition and Income (Call Reports) which include
specific reporting requirements applicable to loan feeso
The
accounting rules contained in the proposed regulations are
generally consistent with the existing requirements set forth in
the Call Report Instructions (FFIEC
034) o
Nos * 031, 032, 033 and
However, these instructions do not specifically address
the appropriate accounting treatment for fees received in
connection with international loans or loan restructurings*
This proposal, therefore, specifies the required accounting
treatment with respect to such fees.
7
In addition to the Call Report Instructions, the agencies
considered the existing diversified practice of accounting for
these fees? current accounting literature on the subject? and
the recent recommendations of AcSEC and the AICPA task force
referred to earlier.
The agencies also considered whether the accounting
treatment for fees should vary depending on whether or not the
fees are associated with a restructuring rather than any other
international loan.
It was decided that the rules should be
identical for both loan situations.
First, the fees are similar
in substance and therefore, should be treated in the same
fashion.
Secondly, distinguishing between a restructuring,
particularly one involving a "new money" component, and other
international loans, including routine refinancings, would
involve an undue regulatory burden on both banking institutions
and the agencies.
Accordingly, the proposed rules would apply
to all international loans uniformly.
The proposed regulations apply to "banking institutions"
which are defined to include banks, bank holding companies, and
Edge and Agreement Corporations engaged in banking.
The
regulations apply to these institutions on a consolidated
basis.
In applying the rules to bank holding companies under
section 910(a)(2) of the Act, the Board has deemed such action
appropriate to promote uniform application of section 906 of the
Act and to prevent evasions thereof.
8
The banking agencies,, in issuing regulations implementing
section 905(a) of the Act, have requested comment generally on
whether and the extent to which any provision of the Act should
apply to the U 0S 0 branches, agencies and commercial lending
company subsidiaries of foreign banks.
The significant provisions of the proposed regulations ares
1.
No banking institution shall charge any fee in connection
with the restructuring of an existing international
obligation of the borrower unless all fees exceeding the
banking institution's administrative cost of the
restructuring are deferred and recognized over the term of
the loan as an interest yield adjustment.,
In determining
what costs should be regarded as administrative costs,
reference should be made to the discussion below of
administrative costs.
2o
The accounting treatment of administrative costs
associated with originating and processing international
loans and loan fees related to the activity of gene:
■ft +
f
r-.c
such loans is as follows?
a*
Fees on international loans that represent yield
adjustments shall be recognized over the expected
loan period using the interest method as an
adjustment of the yield on the loan.,
However, to the
extent these fees' represent a reimbursement of the
banking institution's identifiable administrative
9
costs associated with the loan processing, a portion
of the fee equal to these costs shall be recognized
as income currently*.
b0
Administrative costs are defined as those costs which
are specifically identified with processing and
consummating a loan (excluding general and
non-associated overhead-type costs) o
These costs
include, but are not necessarily limited to: legal
fees? costs of preparing and processing loan
documents? an allocable portion of salaries and
related benefits of employees engaged in the
international lending function? and directly
allocable occupancy and other similar administrative
costs o
3o
For managing banking institutions in international
syndicated loans, the proposed regulations establish a
presumption that a portion of a managing banking
institution's fees (other than commitment or agency fees
for which accounting rules are otherwise set forth in the
regulations) shall be considered an adjustment to yieldo
The interest yield portion is specified as equal to the
proportion of fees in relation to loan principal received
by the largest loan participant that is not a manager in
the syndication
The remainder of the managing banking
institution's fee shall be presumed to be a loan
syndication fee„
This remaining portion may be recognized
10
as revenue when received only to the extent it equals
administrative costs directly identifiable with
syndication processing*, with the excess deferred and
amortized over the term of the loan.
a*
The portion of the syndication fee representing an
adjustment of yield shall be accounted for as
described in 2(a) above.
bo
Administrative costs include those costs which are
specifically identified with negotiating and
consummating such lending arrangements (excluding
general and non-associated overhead-type costs)„
These costs include, but are not necessarily limited
to;
legal fees? costs of preparing and processing
loan documents? an allocable portion of salaries and
related benefits of employees engaged in the
international loan syndication function? and directly
allocable occupancy and other similar administrative
costso
4e
Consistent with the requirements of the Bank Audit Guide,
the proposal takes the view that a loan commitment is a
separate transaction that provides distinct services to
customers for which the lending institution is entitled to
compensation, and that a commitment fee may have two
components.'
one relating to commitments and one related
to lending money.
In order to achieve uniformity in
11
accounting practice and because the components generally
cannot be separately identified, the banking institution
should account for the commitment fee by recognizing the
fee as revenue over the combined commitment and loan
period.
Reimbursement of any direct processing costs will
recognized as income at closing.
Then the straight
be.
lin e
method, based on the comibined life cf the commitment and
loan period, shall be applied to the remaining fee to
recognize income during the commitment period0
When the
loan is disbursed, the interest method shall be applied to
the balance of the fee to recognize income over the life
of the loan*
If the loan i s not funded, unamortized
commitment fees will be recognized as income at the end cf
the commitment period„
5.
The proposed regulations provide that agency fees —
normally an annual fee paid to an Agent Bank by the
borrower to reimburse the bank for the performance of its
administrative duties and out-of-pocket expenses (e .g .,
telex, telephone, postage, printing and travel) incurred
in the performance of such duties -- shall be recorded as
income at the time of loan closing or as the service is
performed, if later,,
The proposed rules differ in two respects from the
accounting recommended in the AICPA issues paper submitted to
the FASB for consideration.
12
First, the proposed rules would require that loan
process i n g / o r i a inat i on costs
be
expensed
as incurred with
fees
equal to the banking institution’s directly identifiable
administrative costa recognised in income in the same periodo
Both the AICPA Task Force and AcSEC believe that such costs
should be capitalized and amortized over the loan period?
however, the Task Force concluded (although AcSEC disagreed)
that expensing all such administrative costs offset by an equal
amount of revenue was an acceptable alternative0
The method proposed of immediately expensing all loan
processingocosts offset by an equal amount of revenue is a long
established practice in the banking industry*
Additionally,
recognition of a portion of the fees gives the same income
result as deferring administrative costs and amortizing them
over the life of the loan, and thus would appear to be equally
consistent with the objectives of section 906 of the Act*
The AICPA issues paper did not specify accounting
treatment of syndication and similar fees*
However, the
presumption is that such fees should be deferred and recognized
over the life of the loan*
The proposed regulations are similar
except for treatment of the associated syndication costs*
The
proposal treats syndication costs consistently with loan
processing costs*
In each case, the income result is the same
as deferring both the costs and fee revenue and amortizing them
over the life of the loan*
13
Secondly,? AeSEC believes that a loan commitment is an
integral part of lending money and therefore loan commitment
fees should be deferred and recognized over the expected loan
period as a yield adjustment.
However, the proposed rules would
allow commitment fees to be recognized over the combined
commitment and loan period.
This proposal parallels the
accounting prescribed in the Call Report Instructions and does
not differ significantly from the requirements in the Bank Audit
Guide.
The AICPA Task Force endorses such treatment of
kJ
commitment fees.
Comments are requested on the proposal and specifically on
the following issuess
(1)
Should the rules differentiate between fees related
to restructured loans and other international loans,
and if so, how should restructured loans be defined?
(2)
Should all or certain costs be capitalized rather
than expensed as incurred?
(3)
Should commitment fees always be deferred and
recognized over the combined commitment and expected
loan period as adjustments to yield?
(4)
How should banking institutions account for the
costs of, and fee income attributable to, their
merchant banking activities?
14
(5)
Is any aspect of the proposed rules inconsistent
with the accounting treatment for domestic loans?
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility
Act (Pub, L, 96 = 354, 5 U 0S„C, 601 e_t sec, ) the agencies have
certified that the proposed regulations, if adopted, will not
have a significant economic impact on a substantial number cf
small entities since small banks generally do not engage
extensively in international lending and would not be affected
by these regulations.
Executive Order 12291
The Comptroller of the Currency has determined that the
proposed regulation does not constitute a "major rule" and
therefore does
net
require a regulatory impact analysis.
List of Subjects in 12 CFR Parts 20, 211 and 351s
Accounting for international loan fees; Banks, banking;
Federal Reserve System; Foreign banking; Investments; Reporting
Requirements; Export Trading Companies; Allocated Transfer Risk
Reserve; National Banks; International Operations; Reserves on
Certain International Assets; Reporting and Disclosure of
International Assets; Federal Deposit Insurance Corporation;
State nonmember banks.
15
Authority and Issuance
Pursuant to their respective authorities, the agencies
propose to amend Title 12 of the Code of Federal Regulations,
Parts 20c 211 and 351* as follows?
16
FEDERAL RESERVE SYSTEM
REGULATION K
[12 CFR PART 211]
(Docket No* R-0509)
International Banking Operations
Pursuant to the Board's authority under sections 9 P 25
and 25(a) of the Federal Reserve Act (12 U 0S 6C o 221 et. sea.,
601=604a, and 611 et s e q 0 ) ,
section 5 of the Bank Holding
Company Act (.12 U oS 0C e 1844) and section 906 of the
International Lending Supervision Act of 1983 (Pub. L 0 98=181,
Title IX, 97 Stat. 1153), the Board proposes to amend 12 CFR
Part 211, Subpart D , as follows?
lo
By redesignating paragraph 211.42(d) as 211.42(f) and
by adding new paragraphs 211.42(d) and (e), to read as follows?
SECTION 211 042
Definitions
&
*
(d)
*
&
&
“International loan" means a loan as defined in the
instructions to the "Report of Condition and Income" for the
17
respective banking institution (FFXEC Nos® 031, 032, 033 and
034") and made to a foreign government, or to an individual, a
corporation, or other entity not a citizen of, resident in, or
organized or incorporated in the United States®
(e)
“'International syndicated loan" means a loan
characterized by the formation of a group of “'managing01 banking
institutions, assumption by them of underwriting commitments,
and in the usual case, participation in the loan by other
banking institutions®
2c
By adding a new section 211.45, to read as follows:
SECTION 211®45
(a )
ACCOUNTING FOR FEES ON INTERNATIONAL LOANS
Restrictions on certain fees for restructured
international loans0
No banking institution shall charge any fee in connection
with the restructuring of an existing obligation of the
borrower unless all fees exceeding the banking institution“s
administrative costs of the restructuring are deferred and
recognized over the- term of the loan as an interest yield
adjustmento
Administrative costs are described in subsection
(b) (3)(iij belowc
(b)
Accounting treatment of international loan administrative
costs and corresponding fees®
18
(1)
Amortizing feesP
Except as otherwise provided by this
section, fees received on international loans shall be deferred
and amortised over the term of the loan*
The interest method
should be used during the loan period to recognise the deferred
fee revenue in relation to the outstanding loan balance,.
(2)
Loan commitment fees.
Loan commitment fees shall be
deferred and amortized over the term of the combined commitment
and loan period..
The straight-line method of amortization
should be used during the commitment period to recognize fee
revenue.
The interest method should be used during the loan
period to recognize the remaining fee revenue in relation to
the outstanding balance*
When any loan amounts are not funded
during the commitment period, a portion of the fee income
deferred may be recognized as income at the end of the
commitment period*
(3)
Administrative costs and corresponding fees*
(i)
Administrative costs for international loans shall be
expensed as incurred*
A portion of the fee income equal to the
banking institution's administrative costs shall be recognized
as income in the same period such costs are expensed*
(ii)
The administrative costs of originating or restructuring
an international loan include those costs which are
specifically identified with processing and consummating the
19
loans
to?
These costs include* but are not necessarily limited
legal fees; costs of preparing and processing loan
documents; an allocable portion of salaries and related
benefits of employees engaged in the international lending
function; and an allocable portion of occupancy and other
similar administrative costs.
(4)
Fees received by and administrative costs of managing
banking institutions in an international syndicated loan.,
Ci )
Fees received on international syndicated loans
representing an adjustment of the yield on the loan shall be
recognized over the loan period using the interest method.
A
portion of the syndication fee shall be recognised as revenue
when received to the extent it equals administrative costs of
the managing banking institution with the excess deferred and
amortized over the term of the loan*
(ii)
If the interest yield portion of a fee received on an
international syndicated loan by a managing banking institution
is unstated or differs materially from the pro rata portion
of loan and commitment fees paid ether participants in the
syndication* an amount necessary for an interest yield
adjustment shall be provided.,
This amount shall at least
be equivalent (on a pro rata basis) to that received by the
largest loan participant in the syndication that is not a
managing banking institution.
20
(iii) The administrative costs of a managing banking
institution in an international syndicated loan shall be
expensed as incurred.
Such costs are those which are
specifically identified with negotiating and consummating
such lending arrangements»
necessarily limited tos
These costs include* but are not
legal fees? costs of preparing and
processing loan documents? an allocable portion of salaries
and related benefits of employees engaged in the syndication
function? and an allocable portion of occupancy and other
similar administrative costSo
(5)
Accounting treatment of Agency fees.
Fees paid to an agent banking institution for administrative
services in an international syndicated loan shall be
recognized at the time of the loan closing or as the service
is performed* if laterD
Dated?
February 8* 1984
(sig n e d )
W i l l i a m . W. W i l e s
WILLIAM Wo WILES
Secretary
Board of Governors of the Federal Reserve System,
21
@FedFRASER