In the areas of the country hardest hit by the recession and credit crisis, the loan participation market has dried up. It's a given that the economy has to improve in order to get the juice flowing, but bankers and other industry experts say that to get banks trusting each other again, participation deals will also need greater transparency, and better underwriting. Also, without a surge in core deposits, many banks will be reluctant to buy into loan deals originated by other banks.
Participations are important to community banks. By offloading some of the loan to other banks, an originating bank reduces its exposure to a certain sector or customer, while allowing it to retain the borrower's deposits. For participants — particularly those in markets with weak loan demand — such deals can be a means for deploying excess capital.