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Under-Funded Loan Financial Exposures
Under-funded loan financing exposures fall into two categories. One is a contingent exposure. With contingent exposures (such as a loan commitment), it is possible that the loan will never be funded. By contrast, direct exposures such as bankers' acceptances will certainly be funded.
Accounting rules require that direct exposures be booked to general ledger accounts on the bank's balance sheet. Contingent exposures may be monitored "off balance sheet." The credit management system should know the difference and be able to post the general ledger accordingly.
Edited by Michael C. Dennis, author of "Credit and Collection Forms and Procedures Manual"