Professional Documents
Culture Documents
Meaning of Consortium
Consortium Bank
Asubsidiarybank
ownedbyseveraldifferentbanks.Eachownerbankhasanequal
sharesothatnobankisthe
Majorityshareholder
Theownerbanksareoftenindifferentcountries.Aconsortiumbankis createdto
financespecificproject;
Oncetheprojectiscomplete,theconsortiumbankdissolvesitself.Whiletheyare
notascommon theyoncewere,theyareusefulwhenaprojectinvolvesmultiple
currencies.
Loan Syndication
While a loan syndication also involves multiple lenders and a single borrower, the
term is generally reserved for loans that involve international transactions, different
currencies and a necessary banking cooperation to guarantee payments and
reduce exposure.
A loan syndication is headed by a managing bank that is approached by the borrower to
arrange credit. The managing bank is generally responsible for negotiating conditions
and arranging the syndicate. In return, the borrower generally pays the bank a
fee.
The managing bank in a loan syndication is not necessarily the majority lender, or
"lead" bank. Any of the participating banks may act as lead or assume the
responsibilities of the managing bank depending on how the credit agreement is drawn
up.
Banking Consortium
Like a loan syndication, consortium financing occurs for transactions that might not take
place with a single lender. Several banks may agree to jointly supervise a single
borrower with a common appraisal, documentation and follow-up.
Consortiums are not built to handle international transactions such as a syndication loan;
instead, a consortium may arise because the size of the project at hand is simply too
large or too risky for any single lender to assume.
Sometimes the participating banks form a newconsortium bankthat functions by
leveraging assets from each institution and disbands after the project is complete.
Multiple Banking