Regulatory Alerts2022-08-02
Legal Lending Limit Treatment for Participation Agreements Containing Repurchase Options
The Louisiana Office of Financial Institutions clarifies that loan participations containing repurchase options qualify as sales rather than borrowings for legal lending limit calculations under state law. Although Generally Accepted Accounting Principles may require booking these non-recourse transactions as secured borrowings, the sold portion is excluded from the legal lending limit computation provided the seller retains an option rather than a requirement to repurchase and shares in the transaction's risks. This ruling ensures institutions avoid legal lending limit violations when reporting the full loan amount on their books while maintaining accurate participation accounting.
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