Loan Transfers to Bank Holding Company

5/27/2010

By Eric Garrett, CPA

Under Federal regulations, bank holding companies are allowed to acquire loans from banks with cash held at the holding company. These transactions, if structured properly, will not be considered lending activities and must meet the conditions of the servicing exemption provided by Regulation Y. Generally, the following conditions must be met when transferring a loan to a holding company:

• Problem loans that are transferred to a holding company should be included in the holding company’s allowance for loan loss methodology to determine that an appropriate allowance is established at the holding company.
• Any workout plans for the loan should be discussed with your primary regulator to determine that they do not constitute real estate development activities at the bank holding company. Holding companies are prohibited from engaging in real estate development activities.
• Approval for the transfer of loans to your holding company should be obtained from your primary regulator prior to transferring assets to a holding company.
• Accounting guidance requires that loans must be transferred at fair value to the holding company. Therefore, the holding company will record the loan at fair value. The bank must record any charge-offs to the allowance for loan losses to write the loan down to fair value before the loan is transferred to the holding company.

Unlike nonperforming assets, there are no specific time restrictions on the retention of performing loans held by a bank holding company.