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New FDIC guidance on managing credit risks for loan participations

New FDIC guidance on managing credit risks for loan participations

Posted on 09/12/2012 at 01:19 PM by The Newsroom

Today, the FDIC issued FIL-38-2012 setting forth some guidelines it expects banks to follow when they purchase loan participations. Essentially, the FDIC expects the same type of underwriting and administration diligence when it comes to loan participations that it expects for loans that a bank directly originates. Loan policies should outline procedures for originating and purchasing participation loans and contain other requirements over the life of the participation, among other listed requirements. The guidance sets forth items that a loan participation agreement should contain, and makes a point of urging banks to exercise caution and perform extensive due diligence for participations involving out-of-territory loan or credit facilities or to borrowers in industries unfamiliar to the bank. Given this advisory, as you prepare for examinations, this might be a good time to look at your loan policy to ensure that it meets the FDIC’s expectations.  

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