Tuesday, April 1, 2008

Games Banks Play - Number Four

Over the next couple of years, many banks will fail and be taken over by the government or larger institutions. This will be an agonizing process that some banks will try to avoid at any cost. I will explain in a multi part series what to watch out for:

Restructured Loans - banks will work with borrowers to try to restructure loans to change the term or the interest rate. This restructuring may trigger an impairment that must be recognized under accounting rules. Also, just because a loan has been restructured doesn't mean that the loan moves from non accrual to accrual status. The borrower must demonstrate an "ability to comply with the new terms." Up to six months may be required before the loan is moved back to accrual status.

Part One

Part Two

Part Three

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