The buyer of a loan in a participation has a double-risk exposure: one to the borrower and one to the selling bank.

Question

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In a loan participation, the buyer assumes a portion of the credit risk associated with the borrower, as well as a portion of the risk associated with the selling bank's ability to fulfill its obligations related to the sale. Therefore, the buyer has a double-risk exposure.

The Buyer of a Loan in a Participation Has a Double-Risk