participation(redirected from Participation Loans)
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participationsee EMPLOYEE PARTICIPATION.
The practice of a lead lender selling portions of a loan to other lenders, called participants. It may be done because the loan is larger than the regulatory limits for the lead lender, or because the loan is very attractive but rather risky, so several lenders will pool their efforts and spread the risk.FDIC regulations that went into effect on January 1,2002,dramatically changed the structure and accounting for many participations. Formerly, lead banks could agree to repurchase a bad loan from a participant. As a result, it was easier to sell shares to other banks because the participants had no risk.Today,such a repurchase agreement will cause the transaction to be treated as a loan from the participant to the lead,rather than a sale,with the result that the lead may be in violation of banking regulations regarding loan size.