Risk Participation


DEFINITION of 'Risk Participation'

A type of off-balance-sheet transaction in which a bank sells its exposure to a contingent obligation, such as a banker's acceptance, to another financial institution. Risk participation allows banks to reduce their exposure to delinquencies, foreclosures, bankruptcies and company failures.

BREAKING DOWN 'Risk Participation'

Risk participation agreements are often used in international trade, but these agreements are risky because the participant has no contractual relationship with the borrower. On the upside, these transactions can help banks generate revenue streams and diversify their income sources.

  1. Financial System

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  2. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
  3. Risk

    The chance that an investment's actual return will be different ...
  4. Off-Balance-Sheet Financing

    A form of financing in which large capital expenditures are kept ...
  5. Obligor

    A person or entity who is legally, or contractually, obliged ...
  6. Banker's Acceptance - BA

    A short-term debt instrument issued by a firm that is guaranteed ...
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