Audit and Accounting Guide - Depository and Lending Institutions

Chapter 8 Loans

Gray shaded text in this chapter reflects guidance issued but not yet effective as of the date of this guide, July 1, 2018, but becoming effective on or prior to December 31, 2018, exclusive of any option to early adopt ahead of the mandatory effective date. Unless otherwise indicated, all unshaded text reflects guidance that was already effective as of the date of this guide.

Introduction

8.01 Loans usually are the most significant assets of financial institutions and generate the largest portion of revenues. Like investments, an institution's management of its loans is an integral part of its asset/liability management strategy (discussed in chapter 1, “Industry Overview — Banks and Savings Institutions,” of this guide). Institutions originate loans, purchase loans or participating interests in loans, sell loans or portions of loans, and securitize loans (the latter two activities are discussed in chapter 10, “Transfers and Servicing and Variable Interest Entities,” of this guide). The composition of loan portfolios differs considerably among institutions because lending activities are influenced by many factors, including the type of institution, management's objectives and philosophies regarding diversification and risk (credit strategy), the availability of funds, credit demand, interest-rate margins, and regulations. Further, the composition of a particular institution's loan portfolio may vary substantially over time.

The Lending Process

8.02 This ...