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 Management

    The process of identification, analysis and either acceptance ...
  3. Obligor

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

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

    Anybody who gains an advantage and/or profits from something. ...
  6. Standby Letter of Credit - SLOC

    A guarantee of payment issued by a bank on behalf of a client ...
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 kinds of costs are included in Free on Board (FOB) shipping?

    Free on board (FOB) shipping is a trade term published by the International Chamber of Commerce or ICC, that indicates which ... Read Full Answer >>
  3. What regulations exist to protect infant industries?

    There are far more protections of once-infant and now-dominant industries in the United States than regulations designed ... Read Full Answer >>
  4. In what manner will a recession likely affect the marginal-propensity-to-save rate ...

    The marginal propensity to save, or MPS, rises in most, though not all, recessions. This makes perfect sense on an individual ... Read Full Answer >>
  5. Why would a country's gross domestic product (GDP) and gross national income (GNI) ...

    A country’s gross domestic product, or GDP, and gross national income, or GNI, are likely to differ considerably because ... Read Full Answer >>
  6. While closely related, how do gross domestic product (GDP) and gross national income ...

    Gross domestic product, or GDP, and gross national income, or GNI, are the two most important economic indicators that measure ... 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

    What is a Resident Alien?

    A resident alien is a foreigner who is a permanent resident of the country in which he or she resides but does not have citizenship.
  7. Economics

    Explaining Protectionism

    Protectionism is government measures that limit imports into a country to protect commerce within that country against foreign competition.
  8. Economics

    What is Neoliberalism?

    Neoliberalism is a little-used term to describe an economy where the government has few, if any, controls on economic factors.
  9. Economics

    Understanding Natural Unemployment

    Natural unemployment is often defined as the lowest rate of unemployment an economy will reach.
  10. Credit & Loans

    Calculating Interest Expense

    Interest expense is the cost of borrowing money.

You May Also Like

Hot Definitions
  1. Multicurrency Note Facility

    A credit facility that finances short- to medium-term Euro notes. Multicurrency note facilities are denominated in many currencies. ...
  2. National Currency

    The currency or legal tender issued by a nation's central bank or monetary authority. The national currency of a nation is ...
  3. Treasury Yield

    The return on investment, expressed as a percentage, on the debt obligations of the U.S. government. Treasuries are considered ...
  4. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  5. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  6. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!