Opportunities in Synthetic Risk Transfers

US regional banks, particularly larger ones, are facing mounting pressure due to higher capital requirements and persistent funding costs, challenging their profitability and prompting new strategies.

Non-bank lenders are increasingly entering core lending markets traditionally dominated by banks. Instead of competing directly, banks are collaborating with these non-banks to expand client relationships and access new markets.

SRTs were created to allow banks to transfer asset risks to investors, improving capital management and reducing loan exposure. These transfers also help banks partner with non-banks, creating opportunities to work together instead of competing.

The US SRT market is expected to expand rapidly in the coming years, potentially catching up with the more mature European market. This growth presents opportunities for investors as SRTs offer steady cash flows and high yields, backed by high-quality bank loans.

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