860-10-55-35 This guidance addresses criteria that must be met for a transfer to fail the condition in paragraph 860-10-40-5(c) through an agreement of the type described in paragraph 860-10-40-5(c)(1), precluding sale accounting and resulting, instead, in secured-borrowing accounting. The following are examples of whether securities exchanged are substantially the same as discussed in paragraph 860-10-40-24:
a. The same primary obligor (see paragraph
860-10-40-24(a)(1)860-10-40-24(a)
). The exchange of pools of single-family loans would not meet this criterion because the mortgages comprising the pool do not have the same primary obligor, and would therefore not be considered substantially the same.
b. Identical form and type (see paragraph
860-10-40-24(a)(2)860-10-40-24(b)
). The following exchanges would not meet this criterion:
1. GNMA I securities for GNMA II securities
2. Loans to foreign debtors that are otherwise the same except for different U.S. foreign tax credit benefits (because such differences in the tax receipts associated with the loans result in instruments that vary in form and type)
3. Commercial paper for redeemable preferred stock.
c. The same maturity (or in the case of mortgage-backed pass-through and pay-through securities, similar remaining weighted-average maturities that result in approximately the same market yield) (see paragraph 860-10-40-24(a)(3)). The exchange of a fast-pay GNMA certificate (that is, a certificate with underlying mortgage loans that have a high prepayment record) for a slow-pay GNMA certificate would not meet this criterion because differences in the expected remaining lives of the certificates result in different market yields.
d. Similar assets as {add glossary link}collateral{add glossary link} (see paragraph 860-10-40-24(a)(5)). Mortgage-backed pass-through and pay-through securities must be collateralized by a similar pool of mortgages, such as single-family residential mortgages, to meet this characteristic.
5. Supersede paragraphs 860-10-55-36 through 55-38 and their related heading, with a link to transition paragraph 860-10-65-4, as follows:
> > > Collateral Maintenance Provisions
860-10-55-36 Paragraph superseded by Accounting Standards Update 2011-03. Paragraph 860-10-40-24(b) provides guidance related to the maintenance of collateral to fund substantially all of the cost of purchasing replacement securities.
860-10-55-37 Paragraph superseded by Accounting Standards Update 2011-03. Arrangements to repurchase or lend readily obtainable securities, typically with as much as 98 percent collateralization (for entities agreeing to repurchase) or as little as 102 percent overcollateralization (for securities lenders), valued daily and adjusted up or down frequently for changes in the market price of the security transferred and with clear powers to use that collateral quickly in the event of default, typically fall clearly within that guideline. Other collateral arrangements typically fall well outside that guideline.
860-10-55-38 Paragraph superseded by Accounting Standards Update 2011-03. This Subtopic does not contain special provisions for differences in collateral maintenance requirements that exist in markets outside the United States. Market practices and contracts for repurchase agreements, sale-buybacks, and securities lending transactions can vary significantly from market to market and country to country. For example, in certain markets, it is not customary to provide or maintain collateral in connection with repurchase transactions. In addition, in certain repurchase agreements, the amount of cash lent often is limited to an amount substantially less than 100 percent (for example, 80 percent or less) of the value of the securities transferred under the repurchase agreements because of the level of market and credit risk associated with those transactions. This Subtopic does not provide special provisions for those differences in collateral requirements. Paragraph 860-10-40-5(c)(1) describes an example of effective control if the transfer involves an agreement that both entitles and obligates the transferor to repurchase or redeem the transferred financial assets before maturity and all of the requirements of paragraph 860-10-40-24 are met.
> > Application of Sale Conditions to Specific Transactions
860-10-55-43 The following provides implementation guidance regarding the application of the sale conditions in paragraph 860-10-40-5 to certain transactions, specifically:
- Pass-through, pay-through, and revolving-period securitizations
- Factoring arrangements
- Transfers of receivables with recourse
- Securities lending transactions
- Repurchase agreements
- Wash sales
- Dollar rolls
- Loan participations
- Banker's acceptances and risk participations in them
- Subparagraph superseded by Accounting Standards Update No. 2009-16.
- Transfers involving certain transferor powers
- Transferor option to repurchase individual financial assets
- Transfer of a short-term loan made under a long-term credit commitment
- Transfer of bad-debt recovery rights.
- Subparagraph superseded by Accounting Standards Update No. 2009-16.
6. Amend paragraphs 860-10-55-53 and 860-10-55-55, with a link to transition paragraph 860-10-65-4, as follows:
> > > Repurchase Agreements
860-10-55-51 Paragraphs 860-10-05-19 through 05-21 provide background on repurchase agreements. Repurchase agreements that do not meet all the conditions in paragraph 860-10-40-5 shall be treated as secured borrowings. Under many agreements to repurchase transferred financial assets before their maturity, the transferor maintains effective control over those financial assets. This Subtopic does not specifically define the term before maturity. The only meaningful distinction based on required repurchase at some proportion of the life of the assets transferred is between a repo-to-maturity, in which the typical settlement is a net cash payment, and a repurchase before maturity, in which the portion of the financial asset that remains outstanding is indeed reacquired in an exchange. A transferor's agreement to repurchase a transferred financial asset would not be considered a repurchase or redemption before maturity if, because of the timing of the redemption, the transferor would be unable to sell the financial asset again before its maturity (that is, the period until maturity is so short that the typical settlement is a net cash payment).
860-10-55-52 If a transferor has transferred securities to an independent third-party custodian, or to a transferee, under conditions that preclude the transferee from selling or repledging the assets during the term of the repurchase agreement (as in most tri-party repurchase agreements), the transferor has not surrendered control over those assets.
860-10-55-53 Fixed-coupon and dollar-roll repurchase agreements, and other contracts under which the securities to be repurchased need not be the same as the securities sold, qualify as borrowings if
the return of
they are substantially the same (see paragraph
860-10-40-24(a)860-10-40-24
) securities as those concurrently transferred
is assured
. Therefore, those transactions shall be accounted for as secured borrowings by both parties to the transfer
provided all other criteria for effective control have been met.
860-10-55-54 Whether a transfer of a debt security is accounted for as a sale under this Topic depends on whether the conditions in paragraph 860-10-40-5 are met. In repurchase transactions involving readily obtainable held-to-maturity debt securities, the conditions set forth in paragraph 860-10-40-24 shall be carefully evaluated to determine whether the transaction should be accounted for as a sale or secured borrowing. For example, if the security that is required to be returned has a different maturity or has a different contractual interest rate from the transferred security, the substantially-the-same criterion would not be met. In that circumstance, effective control would not be maintained under the condition in paragraph 860-10-40-5(c) and the transfer would be accounted for as a sale if the other conditions in paragraph 860-10-40-5 are met. Both parties to a repurchase agreement shall use the same conditions in determining the accounting for a repurchase agreement.
860-10-55-55 If the conditions in paragraph 860-10-40-5 are met, the transferor shall account for the repurchase agreement as a sale of financial assets and a forward repurchase commitment, and the transferee shall account for the agreement as a purchase of financial assets and a forward resale commitment. Other transfers that are accompanied by an agreement to repurchase the transferred financial assets that would be accounted for as sales if the conditions in paragraph 860-10-40-5 are met include transfers with agreements to repurchase at
maturity.maturity and transfers with repurchase agreements in which the transferor has not obtained collateral sufficient to fund substantially all of the cost of purchasing replacement financial assets.
860-10-55-56 Repurchase agreements that involve an exchange of securities or letters of credit are accounted for in the same manner as securities lending transactions (see paragraphs 860-30-25-7 through 25-8).
7. Add paragraph 860-10-65-4 and its related heading as follows:
> Transition Related to Accounting Standards Update No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements
860-10-65-4 The following represents the transition and effective date information related to Accounting Standards Update No. 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements:
- The pending content that links to this paragraph shall be effective for the first interim or annual period beginning on or after December 15, 2011.
- The pending content that links to this paragraph shall be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. Early adoption is not permitted.
8. Amend paragraph 860-10-00-1, by adding the following items to the table, as follows:
860-10-00-1 The following table identifies the changes made to this Subtopic.
Paragraph Number |
Action |
Accounting Standards Update |
Date |
860-10-40-24 |
Amended |
2011-03 |
04/29/2011 |
860-10-40-26 |
Superseded |
2011-03 |
04/29/2011 |
860-10-40-27 |
Superseded |
2011-03 |
04/29/2011 |
860-10-55-34 |
Amended |
2011-03 |
04/29/2011 |
860-10-55-35 |
Amended |
2011-03 |
04/29/2011 |
860-10-55-36 through 55-38 |
Superseded |
2011-03 |
04/29/2011 |
860-10-55-53 |
Amended |
2011-03 |
04/29/2011 |
860-10-55-55 |
Amended |
2011-03 |
04/29/2011 |
860-10-65-4 |
Added |
2011-03 |
04/29/2011 |
The amendments in this Update were adopted by the unanimous vote of the seven members of the Financial Accounting Standards Board:
Leslie F. Seidman, Chairman
Daryl E. Buck
Russell G. Golden
Thomas J. Linsmeier
R. Harold Schroeder
Marc A. Siegel
Lawrence W. Smith