Common use of Readily ascertainable value Clause in Contracts

Readily ascertainable value. Proposed § 950.7(b)(1) authorized the Banks to accept from CFI members or their affiliates as security for advances, CFI-eligible collateral provided that: (i) the loans have a readily ascertainable liquidation value and can be freely liquidated in due course; and (ii) the Bank can perfect a security interest in such collateral. The basis of this standard was the Finance Board’s belief that the liquidation value of collateral, and the ability to liquidate the collateral quickly, was an appropriate measure of the value of CFI-eligible collateral securing an advance. A substantial number of Bank commenters opposed the proposed standard on the grounds that liquidation value is difficult to measure and, therefore, impractical as a standard. The commenters also found the phrase ‘‘freely liquidated in due course’’ to be unclear in terms of when and how frequently such determination would have to be made. In response to the Banks’ concerns, § 950.7(a)(4) is revised in the final rule to provide that CFI-eligible collateral is eligible to secure advances if it has ‘‘a readily ascertainable value, can be reliably discounted to account for liquidation and other risks, and can be liquidated in due course.’’ This standard is intended to clarify that the critical factor is the Bank’s ability to reliably discount the collateral in question. The phrase ‘‘can be liquidated in due course’’ is intended to mean that there are no known impediments to liquidation at the time the collateral is accepted by the Bank. This change also is made in § 950.7(a)(4)(i)(A) of the final rule with respect to other real estate- related collateral.

Readily ascertainable value. Proposed Current § 950.7(b)(1950.9(a)(4)(i)(A) authorized of the Banks Advances Regulation requires other real estate-related collateral to accept from CFI members or their affiliates as security for advances, CFI-eligible collateral provided that: (i) the loans have a readily ascertainable liquidation value and can be freely liquidated in due course; and (ii) the Bank can perfect a security interest in such collateralvalue. See 12 CFR 950.9(a)(4)(i)(A). The basis Finance Board stated in the SUPPLEMENTARY INFORMATION section of this standard was the Finance Board’s belief proposed rule that the liquidation value of collateral, and the ability to liquidate the collateral quickly, was an is a more appropriate measure of the value of CFIother real estate-eligible related collateral securing an advance, particularly given the lifting of the 30 percent cap. Accordingly, proposed § 950.7(a)(4)(i)(A) provided that other real estate-related collateral have a readily ascertainable liquidation value and be able to be freely liquidated in due course. As discussed above, this change also was proposed in § 950.7(b)(1)(i) with respect to CFI- eligible collateral. A substantial significant number of Bank commenters opposed the proposed standard this change on the grounds ground that liquidation value is difficult or impossible to measure and, therefore, impractical as a standard. The commenters also found the phrase ‘‘freely liquidated in due course’’ to be unclear in terms of when and how frequently such determination would have to be made. In response to the Banks’ concerns, § 950.7(a)(4) is revised in the final rule has been revised to provide that CFIother real estate-eligible related collateral is eligible to secure advances if it has ‘‘a readily ascertainable value, can be reliably discounted to account for liquidation and other risks, and can be liquidated in due course.’’ This standard is intended to clarify that the critical factor is the Bank’s ability to reliably discount the collateral in question. The phrase ‘‘can be liquidated in due course’’ is intended to mean that there are no known impediments to liquidation at the time the collateral is accepted by the Bank. This As discussed above, this change also is made in § 950.7(a)(4)(i)(A950.7(b)(1)(i) of the final rule with respect to other real estate- related CFI-eligible collateral.