Nonrecourse sale of bank receivables to a third party, either through the sale of Whole Loans or Whole Pools of loans, or Securitization that is, issuing securities collateralized by the receivables of bank credits (residential mortgages, auto loans, leases, credit card receivables). Accounting treatment of asset sales is complicated, and determines whether a transaction is a sale of assets. In general terms, the test of an asset sale is whether the seller gives the buyer control over the assets transferred, and also any residual interest, without recourse to the seller. Transfers with recourse-allowing the buyer to resell a portion of the assets back to the seller-are treated by Financial Accounting Standards Board Rule 77 as a financing rather than a sale of assets.
If the agreement requires the seller to take back any bad loans, it is not considered for accounting purposes a true sale of assets and the seller cannot deduct the value of loans sold from its loan portfolio. See alsoAsset-Backed Securities; Private Placement; Real Estate Mortgage Investment Conduit (Remic); Securitization.
