DEFINITION of 'Loan Strip'

A type of commercial loan sale whereby funding for a long-term loan is acquired from other lenders. A loan strip is a share of a long-term loan (such as a five-year loan), in which the loan-strip holder receives the agreed-upon amount at maturity. The maturity is usually short-term (often 30 or 60 days). Under certain circumstances, these strips may be classified as borrowed amounts.

BREAKING DOWN 'Loan Strip'

Regulators in the banking industry will classify a loan strip as a borrowed amount if the initial investor decides not to renew the loan and cannot be replaced by another. When this happens, the strips are then classified as deposits and become subject to the reserve requirements as set forth by the Federal Reserve.

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