Strategic Risk Transfer Builds Momentum in US Banking Sector

Strategic Risk Transfer (“SRT”) transactions have grown in significance over the last number of years and as regulatory clarity has been achieved in the US, there is a substantial and successful track record from Europe for the asset class to draw on.

SRT deals have been capturing the headlines in US financial markets as more banks demonstrate the value of these capital relief trades in a shifting regulatory environment and growing uncertainty over the economic outlook. Such transactions have been a mainstay in Europe, as outlined in this article, where a sophisticated market for offloading capital risk has developed and matured over the past decade. SRTs have since looked increasingly attractive to banks in the US, where interest rates have remained elevated for close to three years now, and regulatory scrutiny has increased, with the capital position of regional banks under a microscope since the 2023 banking crisis. Fast forward to today and risks related to exposure to commercial real estate debt have come to the fore for many US banks, creating more concerns over balance sheet stress, albeit not on the scale of the forced sales seen after the Silicon Valley Bank failure.