Instruction No. 94-06 of March 14, 1994, on the Accounting for Asset Transfer or Securitization Operations

OFFICIAL TEXTS OF THE BANKING COMMISSION Instruction No. 94-06 of March 14, 1994 (consolidated version as of 19/06/2009)

Article 1 Assets transferred with a guarantee against the risk of debtor default granted by the transferring institution or by companies fully integrated into the same consolidation perimeter, in accordance with Article 3 of the aforementioned Regulation No. 89-07, are accounted for as follows: – The transferring institution records a liability, equal to the sale price, under the counterpart, "in the element 'securities lent' in the SITUATION table among 'cash operations and interbank operations', or in 'operations with customers'"; – The acquiring institution records a receivable, equal to the acquisition price, under the counterpart, "in the element 'securities received' in the SITUATION table among 'cash operations and interbank operations', or 'operations with customers'". Since the transferred assets remain on the asset side, the guarantee against the risk of debtor default granted by the transferring institution or by companies fully integrated into the same consolidation perimeter does not need to be recorded off-balance sheet in the "SITUATION table".

Article 2 Securities sold with a right of repurchase or buy-back, in accordance with the provisions of Article 4 – I of the aforementioned Regulation No. 89-07, are recorded as follows: – they no longer appear on the asset side of the "SITUATION table of the transferor and are recorded on the asset side of the SITUATION table of the acquirer on the line corresponding to the category of securities concerned"; – the transferring institution and the acquiring institution record off-balance sheet the amount, excluding interest or compensation, equal to the agreed price in the event of exercise of the right of repurchase or buy-back, respectively "in the elements 'Securities sold with right of repurchase or buy-back' or 'Securities purchased with right of repurchase or buy-back' classified in the category of securities to be received or securities to be delivered of the SITUATION table". Sale with option to repurchase operations (réméré) in accordance with the provisions of Article 1659 of the Civil Code constitute purchase (or sale) operations with a right of buy-back and are accounted for in accordance with the first paragraph of Article 4 – III of the aforementioned Regulation No. 89-07.

Article 3 Transfers accompanied by a right of repurchase or buy-back for which there is a high probability of exercise of this right are accounted for, in accordance with Article 4 – II of the aforementioned Regulation No. 89-07, as follows. a) At the accounting cutoff, the transferring institution: – neutralizes the gain or loss arising from the transfer by crediting or debiting the element "Regularization Account"; – evaluates investment securities sold with a right of repurchase or buy-back under the same conditions as investment securities in the portfolio: unrealized losses are subject, if applicable, to a provision for risks and charges calculated by category of securities, and unrealized gains are not recognized; accrued but unpaid interest is recognized; – determines and posts to the income statement the global balance of gains and losses on trading securities sold with a right of repurchase or buy-back calculated with respect to the most recent price on the cutoff date, provided that the institution considers, under the aforementioned Regulation No. 90-01, that the repurchase of the securities and their final sale must take place at the latest six months after their initial acquisition; – evaluates trading securities sold with a right of repurchase or buy-back according to the rules described above for investment securities when the institution considers that the repurchase of the securities and their final sale will occur more than six months after their initial acquisition. b) The transferring institution recognizes pro rata temporis the expense related to the repurchase or buy-back compensation under the counterpart, "in the CPTE_RESU table in the element 'Réméré and similar compensations' as interbank charges, or charges on operations with customers". c) The acquiring institution recognizes pro rata temporis the income related to the repurchase or buy-back compensation, under the counterpart, "in the CPTE_RESU table in the element 'Réméré and similar compensations' as interbank income, or income on operations with customers".

Article 4 Securities lending operations defined in Article 5 of the aforementioned Regulation No. 89-07 are accounted for as follows: – the amount received by the transferor, representing its debt to the acquirer, is recorded on the liability side "in the element 'Securities lent in securities lending' included in the SITUATION table"; – the amount paid by the acquirer, representing its claim on the transferor, is recorded on the asset side "in the element 'Securities received in securities lending' included in the SITUATION table".

Article 5 "Amounts received or paid in the case of securities lending are listed on the PENS_LIVR table and allocated according to the counterpart, according to the initial duration, and according to the issuer."

Article 6 Operations involving the firm sale or lending of securities received in securities lending, carried out in accordance with the third paragraph of Article 5 of the aforementioned Regulation No. 89-07, are accounted for as follows: – the transferring institution or lender records "on the liability side of the SITUATION table in trading securities" the debt representing the securities it must return at the maturity of the loan; – at the accounting cutoff, the debt is evaluated by reference to the most recent price, and the global balance of differences resulting from price variations of the securities is recorded, depending on the direction, "in the elements 'Transaction Losses' or 'Transaction Gains' of the CPTE_RESU table". Securities received in securities lending and then sold firmly or lent are listed on "the PENS_LIVR table".

Article 7 Operations other than securities lending are recorded: – on the asset side, under the counterpart, "in the elements 'Securities received' classified in cash operations and interbank operations or in operations with customers in the SITUATION table"; – on the liability side, under the counterpart, "in the elements 'Securities lent' classified in cash operations and interbank operations or in operations with customers in the SITUATION table".

Article 7bis Additional margin payments in cash made or received by an institution, pursuant to Article L532-12 of the Monetary and Financial Code, are recorded by this institution "in the elements 'Other debtors' or 'Other creditors'". Interest charges or income related to these additional cash margin payments are recognized pro rata temporis, under the counterpart, "in the elements 'Other interest charges' or in the elements 'Other interest income'. When additional margin payments are made in the form of bills or securities, they are recorded "in the elements 'Other guarantees given' and 'Other guarantees received'" (Instruction No. 95-01 of January 30, 1995).

Article 8 Sales of assets accompanied by a firm commitment to repurchase and purchases accompanied by a firm commitment to retrocession are accounted for under the same conditions as the lending operations described in Article 7, in accordance with the provisions of Article 5 of the aforementioned Regulation No. 89-07.

Article 9 Pursuant to Article 8 of the aforementioned Regulation No. 89-07, units of common investment funds acquired by credit institutions are recorded "in the SITUATION table" according to the rules applicable to securities. They also appear "on the TITRE_PTF table, allocated according to the nature of the portfolio, as trading securities, investment securities, or investment securities. Institutions also distinguish on the TITRE_PTF table 'Ordinary units of common investment funds with an initial duration of less than or equal to 5 years' and 'Ordinary units of common investment funds with an initial duration of more than 5 years'."

Article 10 The loss or gain arising from the transfer of credits to a common investment fund is recorded "in the CPTE_RESU table in the elements 'Exceptional Charges' and 'Exceptional Income'".

Article 11 The right to the attribution of all or part of the liquidation surplus is recorded according to the nature of the securitized claims "in the element 'Term accounts and loans' or in the element 'Loans to financial customers'" and is subject, if applicable, to a provision for risks and charges up to the amount of the risk incurred evaluated at the cutoff date in accordance with Article 9 of the aforementioned Regulation No. 89-07.

Article 12 Guarantees granted to a common investment fund, in accordance with the provisions of Article 9 of the aforementioned Regulation No. 89-07, are recorded off-balance sheet "in the elements 'Bailments, avals, other guarantees to credit institutions' or 'Customer guarantees'" depending on whether the beneficiary of the securitized credits is a credit institution or another economic agent. In application of the second paragraph of Article 9 of the same regulation, guarantees granted in the form of insurance contracts covering totally or partially the risk of debtor default observed are subject to a provision up to the amount of the risk incurred evaluated at the cutoff date.

Article 13 Deposits received from common investment funds are recorded "in the element 'Loans to financial customers'".

Article 14 This instruction repeals and replaces Instruction No. 89-06 of September 12, 1989 of the Banking Commission.