The Basel Committee on Banking Supervision (BCBS) today released a report on synthetic significant risk transfer (SRT) transactions. An SRT is required to achieve capital relief on the securitised position. Whilst this is also possible in true sale structures, it is predominantly implemented in synthetic securitisations. Over the past decade, the economic importance of SRT markets has grown rapidly, becoming a key source of capital relief for corporate credit risks.
This report focuses on synthetic risk transfers, which are estimated to account for over 90% of all SRT transactions in Europe. The 30-page report examines in particular:
- the range of synthetic SRTs and the associated risks;
- the market for these SRTs, including an analysis of market size, participants, and trends; and
- the approaches of supervisory authorities across different jurisdictions regarding such SRTs.
The report highlights that, on average, 12% of corporate loans held by the banks surveyed in the EU, UK, and Switzerland are synthetically securitised, resulting in a reduction of the CET1 capital ratio by 0.47 percentage points.
On the investor side, various types of public institutions, pension funds, and – above all – specialised credit funds are active. However, the extent to which banks themselves are involved in financing SRT credit funds remains unclear due to a lack of data, and this will rightly be a focus for further analysis, according to the BCBS.
Here you can access the highly informative BCBS report