FASB: loan commitments must be treated like derivatives

The US Financial Accounting Standards Board (FASB) ruled last month that some unfunded loan commitments made by banks should be treated like derivatives and marked-to-market. The ruling came nearly nine months after Goldman Sachs first proposed the approach and sparked a debate between commercial and investment bankers.

It means banks that extend unfunded loan commitments may have to charge more for them, or at least better quantify their value in maintaining client relationships.

But the type of commitments that set off the controversy – those to investment-grade borrowers – are unlikely to be affected very much, while leveraged (below-investment-grade) transactions may become more expensive.

Goldman Sachs asked FASB to require that unfunded loan commitments be marked-to-market in a letter to the standards