While European banks have typically been the leading issuers of these kinds of vehicles, there’s increasing activity from U.S. and Canadian banks, the rating agency said.
“[Risk transfer] volumes have steadily increased over several years, with activity led by European banks and supplemented more recently by Canadian and U.S. peers,” it said.
And, while these vehicles are often designed primarily to help gain capital relief, banks are also increasingly using them “to actively manage loan portfolios” — which allows them to reduce lending concentrations in certain sectors, or even to specific borrowers, boosting their overall lending capacity.
These transactions are moving credit risk to the shadow banking sector — with hedge funds and private credit funds as the primary buyers — but large asset managers, insurers and pension funds are ramping up participation in these deals too, S&P said.
For the firms taking on the banks’ credit risk, these transactions offer “attractive premium income and exposure to a diverse range of borrowers and asset classes that may not be accessible in other markets,” the report noted.
Banks’ past efforts to shift some of their…
