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. Risk Tolerance

    The degree of variability in investment returns that an individual ...
  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. When has the United States run its largest trade deficits?

    In macroeconomics, balance of trade is one of the leading economic metrics that determines the trading relationship of a ... Read Full Answer >>
  3. Which is more important to a nation's economy, the balance of trade or the balance ...

    There is no question the composition of a country's balance of payments is more important than its balance of trade. This ... Read Full Answer >>
  4. What is the difference between cost and freight (CFR) and cost, insurance and freight ...

    The difference between cost and freight (CFR) and cost, insurance and freight (CIF) is essentially the requirement under ... Read Full Answer >>
  5. What is the difference between Cost and Freight (CFR) and Free on Board (FOB)?

    The difference between cost and freight (CFR) and free on board (FOB) lies in who has responsibility for various shipping ... Read Full Answer >>
  6. What are the ethical arguments against government subsidies to companies like Tesla?

    The ethical argument behind government subsidies is that they should be put into place to help industries that will, in turn, ... 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. Savings

    Inflation for Dummies

    Inflation may seem like a straightforward concept, but it is more complex than it appears. We examine its varieties and causes.
  7. Investing News

    How China's Lenovo Makes Money

    Lenovo has emerged as one of China's most renowned multinational corporations. We examine the strategy and business model underlying its success.
  8. Investing Basics

    Is Lenovo A True Disruptor Of The Laptop Industry?

    Lenovo has cut costs, taken market share from top competitors and caters to both consumers and institutions, but is it a disruptor?
  9. Investing

    Is It Time To Buy Commodities?

    Despite the news, the Athens Stock Exchange is down less than 5 percent year-to-date, while the Shanghai Composite remains up more than 10 percent.
  10. Economics

    Sacrifices Necessary to Keep Puerto Rico Afloat

    After years of band aids and significant borrowing to meet its obligations, the time has come for meaningful reform in Puerto Rico.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
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!