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Underwriting
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The process of evaluating a loan application to determine the Risk involved for the lender.
The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both Equity and Debt) or the process of issuing insurance policies.
The word "underwriter" is said to have come from the practice of having each Risk-taker write his or her name under the total amount of Risk that he or she was willing to accept at a specified Premium. In a way, this is still true today, as new issues are usually brought to market by an underwriting syndicate in which each firm takes the responsibility (and Risk) of selling its specific allotment.
In banking, underwriting is the detailed credit analysis preceding the granting of a loan, based on credit information furnished by the borrower, such as employment history, salary, and financial statements; publicly available information, such as the borrower's credit history, which is detailed in a credit report; and the lender's evaluation of the borrower's credit needs and ability to pay. Underwriting can also refer to the purchase of corporate bonds, commercial paper, Government securities, municipal general obligation bonds by a Commercial bank or dealer bank for its own account, or for resale to investors. Bank underwriting of corporate securities is carried out through separate holding company affiliates, called securities affiliates, or Section 20 affiliates.
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Institute for International Research
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