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Exploring Synthetic Risk Transfer in Banking
This chapter examines Synthetic Risk Transfer (SRT) as a financial innovation in the banking sector, where banks mitigate risks by transferring them to insurance companies or investment funds. The discussion highlights the historical prominence of Europe in SRT, influenced by stricter regulatory requirements post-financial crisis, and the benefits for both banks and investment funds involved. The chapter also reflects on the rapid growth of SRTs and the potential for future financial innovations to yield unintended consequences.