Banks Reduce Capital Ratios with SRT Deals: BIS Research

Synthetic risk transfer (SRT) transactions reached a record €260 billion ($305 billion) in 2024, a €36 billion increase from 2023, as banks leveraged these deals to reduce their capital requirements by an average of 43 basis points, according to reports released by the Bank for International Settlements (BIS).

The findings, published on May 1, 2026, highlight the growing use of SRTs for both capital and credit risk management. European banks continue to dominate the market, accounting for €152 billion of the total volume.

Growth in SRT Issuance

The surge in SRT issuance reflects a broader trend of banks seeking to optimize their capital positions. SRTs allow banks to transfer credit risk to institutional investors while retaining ownership of the underlying loan portfolios. This process frees up regulatory capital, enabling banks to lend more or pursue other business opportunities.

The BIS reports indicate that banks with lower capital adequacy levels are particularly inclined to utilize SRTs. This suggests that these instruments are playing a role in helping institutions meet regulatory requirements and maintain financial stability.

European Dominance and Emerging US Activity

Historically, European banks have been the primary drivers of SRT issuance. However, the BIS notes an increasing participation from North American banks in recent years, signaling a potential shift in the geographic distribution of this market.

Potential Risks and Monitoring Needs

While SRT-related risks are currently considered modest, the BIS cautions that they could escalate as the market expands and structures become more complex. A key concern is the increasing reliance on non-bank financial institutions (NBFIs) for credit protection, which could create new channels of contagion in times of stress.

Limited and fragmented information heightens the potential for SRT-related risks to build undetected, highlighting the need for enhanced monitoring of risks for individual banks and from a systemwide perspective.

Bank for International Settlements

The BIS emphasizes the importance of improved monitoring to identify and mitigate potential systemic risks associated with SRTs. This includes enhancing data collection and analysis, as well as strengthening regulatory oversight of both banks and NBFIs involved in these transactions.

Capital Relief and Basis Point Reduction

The average capital requirement reduction achieved through SRT deals was 43 basis points. This demonstrates the tangible benefits banks are realizing in terms of capital efficiency. The ability to reduce capital requirements allows banks to deploy capital more effectively, potentially boosting economic growth.

The use of capital call facilities within SRT deals is also noted as a factor contributing to their high capital requirements, coupled with banks’ desire to maintain relationships with private equity clients who often hold these facilities.

Regulatory Scrutiny

The Basel Committee has also published a report on synthetic risk transfer markets, indicating increased regulatory attention to this growing area of finance. This heightened scrutiny is likely to lead to further refinements in regulatory frameworks governing SRTs, aiming to balance the benefits of capital relief with the need for financial stability.

The BIS report underscores the need for a comprehensive understanding of the risks and benefits associated with SRTs, as well as ongoing monitoring to ensure that these instruments do not pose a threat to the broader financial system.