Variable Interest Entity - VIE

AAA

DEFINITION of 'Variable Interest Entity - VIE'

An entity (investee) in which the investor has obtained less than a majority-owned interest, according to the United States Financial Accounting Standards Board. A variable interest entity (VIE) is subject to consolidation if certain conditions exist.

If a firm is the primary beneficiary of a VIE, the holdings must be disclosed on the balance sheet. The primary beneficiary is defined as the person or company with the majority of variable interests.

Also known as a conduit.

INVESTOPEDIA EXPLAINS 'Variable Interest Entity - VIE'

VIEs are commonly used within financial firms for their subprime mortgage-backed securities. They can be a special-purpose vehicle (SPV) that allows firms to keep assets off of their balance sheets. A VIE refers to the way a firm's exposure to the SPV can change. This is the key to whether or not it can be excluded from the balance sheet.

A corporation can use such a vehicle to finance an investment without putting the entire firm at risk. The problem, as with SPVs in the past, is that they have become a method of hiding things (such as subprime exposure).

RELATED TERMS
  1. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
  2. Subprime

    A classification of borrowers with a tarnished or limited credit ...
  3. Special Purpose Vehicle/Entity ...

    1. Also referred to as a "bankruptcy-remote entity" whose operations ...
  4. Securitization

    The process through which an issuer creates a financial instrument ...
  5. Off-Balance-Sheet Financing

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

    A document filed by an insurance or reinsurance company that ...
RELATED FAQS
  1. What is happening during a risk repricing?

    During a strong bull market, the market's overall sense of optimism can often lead to poor estimates about the level of risk ... Read Full Answer >>
  2. What is a liquidity squeeze?

    A liquidity squeeze occurs when a financial event sparks concerns among financial institutions (such as banks) regarding ... Read Full Answer >>
  3. What is a subprime mortgage?

    A subprime mortgage is a type of loan granted to individuals with poor credit histories (often below 600), who, as a result ... Read Full Answer >>
Related Articles
  1. Mutual Funds & ETFs

    Fatal Seduction Of The Municipal Bond Insurers

    Learn how a foray into CDOs and other exotic products ruined an industry's image.
  2. Personal Finance

    The Fuel That Fed The Subprime Meltdown

    Take a look at the factors that caused this market to flare up and burn out.
  3. Options & Futures

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  4. Budgeting

    Do I Need A Personal Accountant?

    You know you need to keep your personal finances better organized. Should you hire professional help, and if so what kind?
  5. Forex Strategies

    The 10 Riskiest Investments

    Investors seeking high returns must also be prepared for high risk. Here are ten of the riskiest investments available.
  6. Options & Futures

    Was Buffet Right about Derivatives as WMDs?

    Why Warren Buffet described derivatives as weapons of mass destruction, and when can they be helpful or harmful?
  7. Economics

    Understanding Perpetuity

    Perpetuity means without end. In finance, a perpetuity is a flow of money that will be received on a regular basis without a specified ending date.
  8. Options & Futures

    Examples Of Exchange-Traded Derivatives

    We look at some of the most common exchange-traded derivatives.
  9. Options & Futures

    Advantages Of Trading Futures Over Stocks

    We look at the top eight advantages of trading futures over stocks.
  10. Fundamental Analysis

    What is a Null Hypothesis?

    In statistics, a null hypothesis is assumed true until proven otherwise.

You May Also Like

Hot Definitions
  1. DuPont Analysis

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

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center