Risk Participation Agreement – What’s that?
Lately, we are seeing an increased level of interest in Risk Participation Agreements (RPAs) by our clients. In simple terms, this is a relatively new instrument where banks are sharing their risk related to interest rate swaps on participated loans. Generally, a lead bank enters into a swap with one of its borrowers and looks to offset some of their credit risk by participating-out a portion of the risk of default on the interest rate swap by the borrower to a participating-in bank. In exchange, the participating-in bank receives a fee from the participating-out bank.
If you’d like to get a better understanding of RPAs, or to discuss the monitoring and financial reporting implications, contact your BNN advisor at 1.800.244.7444.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.