BofA Targets Regional Banks to Expand Risk Transfer Market - FT

According to financial reports, Bank of America is preparing plans to structure risk transfer agreements for smaller lenders. Synthetic risk transfers (SRTs) have rapidly become one of the fastest-growing segments in financial markets for banks and private equity investors. Banks utilize SRTs to gain protection against losses in a loan pool by selling a slice of credit risk to investors and paying them regular fees for assuming the risk. The transfer of risk to investors may trigger regulatory relief, allowing banks to require less capital to balance loans while still maintaining the credit on their balance sheets, thus enhancing returns. Bank of America's move has the potential to significantly expand the pool of investors that can purchase SRTs, as well as banks that can issue them. According to data from the investment firm Chorus Capital, lenders are on track to issue a record amount of SRTs this year. In the first nine months of 2024, $16.6 billion in SRTs has been issued, indicating protection over a much larger base loan pool.