FICC Focus Credit Crunch: Significant Risk Transfers Feeding Private Credit
Aug 27, 2025
Matthew Moniot, a credit risk specialist at Man Group; James Plunkett, overseeing capital distribution at Natwest; and Lento Tang, a European bank analyst at Bloomberg Intelligence, dive into the intricacies of Significant Risk Transfers (SRTs). They discuss the critical role SRTs play in banking risk management and the shifting dynamics in Europe versus the U.S. Additionally, they unpack the challenges posed by capital regulations and the evolving landscape of investment opportunities, emphasizing the importance for credit investors.
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SRTs Transfer Risk And Reduce Capital Needs
- Significant Risk Transfers (SRTs) let banks shift credit risk and obtain regulatory capital relief, mostly via synthetic structures.
- Europe is the largest SRT market with rapid growth and expected continued expansion in 2025-26.
Market-Test Pricing With Multiple Investors
- Engage the market broadly and collaborate with several investors to price SRTs effectively.
- Prioritize investor eligibility and documentation terms as they often matter more than small spread differences.
Banks Optimize Pools For Capital Efficiency
- Banks tend to pick high-quality, low-loss loans that carry high regulatory risk weights to maximize capital efficiency.
- That selection explains why many SRT pools look concentrated in similar higher-risk-weight segments.