Some Banks Offset Loan Risk with ‘Synthetic’ Transfers: WSJ

Originally published on November 7, 2023 by Matt Wirz for the Wall Street Journal.

U.S. banks have found a new way to unload risk as they scramble to adapt to tighter regulations and rising interest rates.

JPMorgan Chase, Morgan Stanley, U.S. Bank and others are selling complex debt instruments to private-fund managers as a way to reduce regulatory capital charges on the loans they make, people familiar with the transactions said.

These so-called synthetic risk transfers are expensive for banks but less costly than taking the full capital charges on the underlying assets. They are lucrative for investors, who can typically get returns of around 15% or more, according to the people familiar with the transactions.

U.S. banks mostly stayed out of the market until this autumn, when they issued a record quantity as a way to ease their mounting regulatory burden.

Read More
Share this post: