My bank periodically issues Commercial Commitment Letters. I am auditing them as part of a Contingent Liability audit. The bank is not currently recording the amount of the letter as a Contingent Liability. However, I am finding some information that suggests some of them may need to be recorded.
The following excerpt is from Call Report Instructions (RC-L Item 1(6)): https://www.fdic.gov/regulations/resources/call/crinst/2016-09/916RC-L_093016.pdf (6) Commitments to issue a commitment at some point in the future, where the bank has extended terms, the borrower has accepted the offered terms, and the extension and acceptance of the terms:
(a) Are in writing, regardless of whether they are legally binding on the bank and the borrower, or
(b) If not in writing, are legally binding on the bank and the borrower,
even though the related loan agreement has not yet been signed and even if the commitment to issue a commitment is revocable, provided any revocation has not yet taken effect as of the report date.
From (a), I feel like it should be recorded if it is signed by the borrower (thus accepted in writing). For (b) they say "legally binding" but I do not see that it is clearly defined.
Does anyone have input they could offer? Does anyone record commitment letters as contingent liabilities? If so, would you mind sharing how you are managing that process to make sure they are recorded timely?