Capital rules explain leverage craving in US bank risk transfers
Tougher requirements have led to conservative structuring and lower coupons
Capital rules that were written to keep banks safe are fuelling the controversial use of leverage by investors in US risk transfer deals.
Tougher requirements for US versus European banks have led to a difference in how the so-called synthetic risk transfer (SRT) deals are structured.
And the resulting lower coupons are driving investors to use leverage on US trades as they try to generate yields comparable to the double-digit returns available on equivalent investments in Europe.
“A lot of funds
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