Loan Participation

Sharing of a loan by a group of banks that join together to make a loan too large for any one bank to handle. Also known as participation financing, loan participations are arranged through Correspondent banking networks in which smaller banks buy a portion of the overall financing package. Large syndications may run into hundreds of millions of dollars, and involve more than one hundred different banks. Syndications are also a convenient way for smaller banks to book loans that would otherwise exceed their Legal Lending Limits. By selling most of the financing to an Upstream correspondent, the local bank earns fee income from servicing the loan, and is able to retain other banking relationships, such as checking accounts.