Risk Participation

What is 'Risk Participation'

Risk participation is 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.

RELATED TERMS
  1. Delinquent

    The failure to accomplish what is required by law or duty, such ...
  2. Off-Balance-Sheet Financing

    A form of financing in which large capital expenditures are kept ...
  3. Transaction Exposure

    The risk, faced by companies involved in international trade, ...
  4. Delinquent Mortgage

    A mortgage for which the borrower has failed to make payments ...
  5. Credit Netting

    A system whereby the number of credit checks on financial transactions ...
  6. Participation Rate

    A measure of the active portion of an economy's labor force. ...
Related Articles
  1. 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.
  2. Investing Basics

    Banker's Acceptance 101

    A banker's acceptance, a common way of financing international trade activity, provides a relatively safe, short-term vehicle for investors. An acceptance is a negotiable time draft that a bank ...
  3. Economics

    Explaining the Participation Rate

    The participation rate is the percentage of civilians who are either employed or unemployed and looking for a job.
  4. Executive Compensation

    Personal Banker: Job Description & Average Salary

    Discover the job duties and typical salary of a personal banker, and identify the education and skill set needed to be successful in the field.
  5. Forex

    Market Participants

    A look at the major participates in the forex market.
  6. Personal Finance

    What Do Investment Bankers Really Do?

    Investment bankers are essentially corporate financial advisors and can help companies manage the process of raising financing for their activities.
  7. Retirement

    Money Market: Banker's Acceptance

    A bankers' acceptance (BA) is a short-term credit investment created by a non-financial firm and guaranteed by a bank to make payment. Acceptances are traded at discounts from face value ...
  8. Professionals

    Investment Banker: Career Path & Qualifications

    Learn more about the work of investment bankers, and discover how most professionals got started in the field and progressed into their roles.
  9. Professionals

    Helping Clients Navigate Short Sales And Foreclosures

    Both buyers and sellers can benefit from a real estate professional experienced in dealing with short sales and foreclosures.
  10. Professionals

    Analysis and Evaluation of Risk Exposure

    Analysis and Evaluation of Risk Exposure
RELATED FAQS
  1. How does off balance sheet financing work?

    Read about the use of off-balance-sheet financing in corporate America, including the use of special purpose vehicles to ... Read Answer >>
  2. Why should investors be wary of off balance sheet financing activities?

    Find out why investors should be wary of off-balance-sheet financing, including how businesses use this accounting technique ... Read Answer >>
  3. Why is marketing important to a company in the utilities sector?

    Find out what a banker's acceptance is, how it works, and why it should be considered a safe and liquid money market instrument. Read Answer >>
  4. How can I look up average banker's acceptance yields?

    Discover what a banker's acceptance note is, how it is commonly used, and where investors can find information on available ... Read Answer >>
  5. How do I obtain a banker's acceptance?

    Find out how to obtain a banker's acceptance, why you should treat it like a short-term loan and when you would most likely ... Read Answer >>
  6. What types of assets may be considered off balance sheet (OBS)?

    Learn about what types of assets are often accounted for using the off-balance-sheet method and why this accounting technique ... Read Answer >>
Hot Definitions
  1. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  2. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  5. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  6. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
Trading Center