Today, we are kicking off a three part series discussing capital relief trades (CRTs)—often referred to as synthetic securitizations—which  are used by banks to transfer risk on reference pools of assets to non-bank investors, reduce the risk weight of assets held by such banks and improve capital ratios.

Historically, the CRT market has been dominated by issuers in the UK and other European jurisdictions.  The United States has lagged Europe in CRT issuance for a number of reasons, including:

  • US banks have largely been well-capitalized and have had less need for regulatory capital relief relative to banks in some European jurisdictions;
  • a higher risk-weight floor for securitization exposures in the United States means CRTs provide less benefits for US banks relative to their European counterparts; and
  • hesitancy by US banks to be a first-mover in the CRT market, which may be especially true in the case of regional banks who may have an interest in CRT, but prefer to wait for a large bank to pave the way with regulators.

Despite the above forces, there is a growing interest among US banks in CRTs.  The first part of our series on CRTs will feature:

  • Julie Gillespie, co-head of Mayer Brown’s structured finance practice, and Carol Hitselberger, co-leader of Mayer Brown’s banking and finance practice, discussing why U.S. banks are interested in CRT and what are the operational requirements for synthetic securitizations under the US capital rules;
  • Larry Hamilton, co-lead of Mayer Brown’s US Insurance Regulatory & Enforcement group discussing issues that arise under US insurance regulations in connection with CRTs; and
  • Derivatives partners, Curtis Doty and Matt Kluchenek, discussing important issues under US swaps regulations affecting CRTs.

You can find Part one of our CRT series here.

Please be on the look-out for Part two of our CRT series, in which we will discuss issues that arise under the Volcker Rule and U.S. risk retention rules in connection with structuring CRTs.

In Part three we will wrap up our series with a UK perspective on CRT from Ed Parker, global practice head of Derivatives & Structured Products at Mayer Brown.