Variable Interest Entity - VIE


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.

BREAKING DOWN '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).

  1. Subprime Meltdown

    The sharp increase in high-risk mortgages that went into default ...
  2. Special Purpose Vehicle/Entity ...

    1. Also referred to as a "bankruptcy-remote entity" whose operations ...
  3. Subprime

    A classification of borrowers with a tarnished or limited credit ...
  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. Put-Call Parity

    A principle that defines the relationship between the price of ...
Related Articles
  1. 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.
  2. 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.
  3. Options & Futures

    Subprime Is Often Subpar

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

    Career Advice: Accountant Vs. Financial Planner

    Identify the key differences between a career in accounting and financial planning, and learn how your personality dictates which is the better choice for you.
  5. Investing Basics

    What Does Plain Vanilla Mean?

    Plain vanilla is a term used in investing to describe the most basic types of financial instruments.
  6. Investing Basics

    What Does In Specie Mean?

    In specie describes the distribution of an asset in its physical form instead of cash.
  7. Economics

    Calculating Days Working Capital

    A company’s days working capital ratio shows how many days it takes to convert working capital into revenue.
  8. Economics

    Calculating Cross Elasticity of Demand

    Cross elasticity of demand measures the quantity demanded of one good in response to a change in price of another.
  9. Fundamental Analysis

    Emerging Markets: Analyzing Colombia's GDP

    With a backdrop of armed rebels and drug cartels, the journey for the Colombian economy has been anything but easy.
  10. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  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 >>
  4. Does working capital include inventory?

    A company's working capital includes inventory, and increases in inventory make working capital increase. Working capital ... Read Full Answer >>
  5. Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, ... Read Full Answer >>
  6. Are dividends considered an asset?

    Whether dividends paid on stock are considered an asset depends on which role you play in the investment: the issuing company ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  2. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  3. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  4. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  5. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  6. Cost Of Funds

    The interest rate paid by financial institutions for the funds that they deploy in their business. The cost of funds is one ...
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!