<div id="readability-page-1"><div><div><div>Key points:<ul><li>SRTs popular in EU, transactions more than tripled 2016-2024, says banking regulators' report</li><li>Warns that heavy reliance on SRTs exposes banks to 'shadow banking' risks</li><li>Regulators concerned about transparency issues in non-bank industry</li></ul></div>By Tommy Reggiori Wilkes Banks are increasingly turning to bespoke deals with private investment funds to shed credit risk, but the market needs close monitoring as it spawns new vulnerabilities for the global financial system, the world's forum for banking regulators said.These &#34;synthetic risk transfers&#34; (SRTs) involve a bank selling all or part of the credit risk of a group of assets to investors such as hedge or pension funds. They allow banks to free up capital while maintaining their client relationships.SRTs are not new, but they have proven particularly popular in the European Union, with new transactions more than tripling between 2016 and 2024 after EU regulatory changes provided some synthetic securitisations preferential prudential treatment, the Basel Committee on Banking Supervision said in a report on Tuesday. U.S. volumes have also jumped following regulatory clarity in 2023 on how the deals are treated under bank capital requirements, added the committee, which is made up of banking regulators and central bankers from the G20 economies and other countries. Among European banks, Britain's Barclays , Austria's BAWAG and Greece's Alpha are the heaviest users of SRTs relative to the size of their corporate loan books - with the average listed lender using them to cover about 12% of those loans, the report said.WORRY OVER 'SHADOW BANKING' TIESThe committee said SRTs help banks boost lending that is subject to lower capital requirements but warned that heavy reliance on them left lenders exposed to the health of non-financial intermediaries buying the risk. If those investors falter, this could affect the flow of credit.&#34;A contraction in credit caused by a protracted freeze in SRT markets could exacerbate an economic downturn and increase stress in the non-financial sector, possibly triggering an adverse deleveraging feedback loop,&#34; the committee wrote in the report.Regulators globally are concerned about the growth of non-bank intermediaries involved in what is often referred to as 'shadow banking', because of a lack of transparency and the possibility of new risks that could endanger broader financial stability. The committee's report also highlighted risks over growing links between banks and non-banks - because banks often finance the very investors buying the credit risk - as well as opaque individual deals and weakening underwriting standards.While some of these risks are being monitored and addressed, the committee said closer supervision was needed as further growth of the SRT market could multiply the risks.</div></div></div>

EUFN

FNCL

IEUS

DJSC

PBEU

IEUR

The Basel Committee warns that the increasing use of synthetic risk transfers (SRTs) by banks to manage credit risk requires close monitoring due to potential vulnerabilities in the financial system. SRT transactions have tripled in the EU from 2016 to 2024, raising concerns about reliance on non-bank intermediaries and shadow banking risks. The report highlights the need for greater transparency and supervision as the growth of SRTs could exacerbate economic downturns and stress in the non-financial sector.

Bank 'risk transfer' boom needs close monitoring, Basel Committee warns