New Accounting for Loan Participations By: Rocky J. Levkulich, CPA Date: 07/30/09          Currently when a bank sells a loan participation, the transaction is usually accounted for as a “sale.”  This means that the participated portion of the loan disappears from the balance sheet. Under the new rules (adapted as revisions to FAS 140), to continue to be eligible for sales treatment, loan participation agreements must divide cash flows in the same proportion as the shares of ownership of the participation.  If there is a difference between the method of splitting cash flows and the ownership of the participation, “sales” treatment would not be allowed.  If sales treatment is not allowed, the balance sheet must be “grossed-up”; i.e. the entire loan remains on the books and the proceeds received from the participating bank are recorded as a liability. Good news – regular loan participations that are in effect at December 31, 2009, for calendar year banks, will be grandfathered under the existing standards.   The effective date of the revised Statement will be the beginning of a bank’s first fiscal year after November 15, 2009 (January 1, 2010 for most banks).