Risk Participation

AAA

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Financial System

    A financial system can be defined at the global, regional or ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual ...
  3. Obligor

    A person or entity who is legally, or contractually, obliged ...
  4. Beneficiary

    Anybody who gains an advantage and/or profits from something. ...
  5. Off-Balance-Sheet Financing

    A form of financing in which large capital expenditures are kept ...
  6. Risk

    The chance that an investment's actual return will be different ...
RELATED FAQS
  1. What is the difference between loan syndication and a consortium?

    In a very general sense, a consortium is any group of individuals or entities that decides to pool resources toward a given ... Read Full Answer >>
  2. What's the difference between the prime rate and the repo rate?

    The prime rate is used as the index for rates offered in consumer lending and loan products. When government central banks ... Read Full Answer >>
  3. What should ordinary borrowers know about the prime rate?

    The prime rate is set by governments and used as the index for consumer lending rates. Banks add a markup to the prime rate. ... Read Full Answer >>
  4. How do open market operations affect the overall economy?

    Open market operations affect the overall economy in that the Federal Reserve uses open market operations to control the ... Read Full Answer >>
  5. How is free enterprise affected by monetary policy?

    Monetary policy is concerned with the quality, quantity and function of money instruments in an economy. Perhaps the best ... Read Full Answer >>
  6. What does it mean when a country has little activity in its capital account?

    Since a country's capital account represents money flow into the country through foreign investment, having only a small ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  2. Fundamental Analysis

    Analyzing A Bank's Financial Statements

    A careful review of a bank's financial statements can help you identify key factors in a potential investment.
  3. Personal Finance

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  4. Investing Basics

    How To Evaluate A Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  5. Investing

    Off-Balance-Sheet Entities: An Introduction

    The theory and practice of these entities varies greatly. Investors need to learn what they're getting into.
  6. Economics

    Current Countries Under A Western Embargo

    We look at which countries the United States and European Union have imposed an imposed embargoes on and why.
  7. Economics

    What Part of the Money Supply is M2?

    M2 is the part of the money supply economists use to analyze and predict inflation.
  8. Economics

    Understanding Structural Unemployment

    Structural unemployment is an economic miss-match where workers fail to find jobs and employers with available jobs fail to find workers.
  9. Investing News

    Cost-Free Connection Of Target Groups To Marketers

    ZipDial spotted a niche marketing opportunity in the area of “missed calls” and developed a business around it. Here is how ZipDial works and its benefits.
  10. Investing News

    The Funds Keep Flowing Into Indian Tech Startups

    Investors are increasingly turning their attention to Indian tech startup companies. Billions of dollars are flowing into the startup sector in India.

You May Also Like

Hot Definitions
  1. Geometric Mean

    The average of a set of products, the calculation of which is commonly used to determine the performance results of an investment ...
  2. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  3. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  4. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  5. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  6. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
Trading Center