US banks modest use of risk transfers is credit positive, Moody's says

Shankar Ramakrishnan

Tue, May 6, 2025, 5:13 AM 2 min read

By Shankar Ramakrishnan

(Reuters) -A precise tiny proportionality of U.S. banks person issued a analyzable merchandise that enabled them to shed hazard from indebtedness portfolios and the comparatively humble usage of the products was a recognition positive, Moody’s Ratings said successful a study aft surveying 69 rated U.S. banks.

In deals known arsenic recognition hazard transfers, banks efficaciously bargain security from hedge funds and different investors against the hazard of losses from loans.

They grew successful popularity successful 2022 arsenic regulators projected increases to superior requirements for ample banks aft the determination banking situation and nether the Basel III regulations that pushed banks to look for ways to amended their regulatory capitalization levels.

Still lone 15 retired of 69 U.S. banks surveyed by Moody’s issued CRTs and their usage was comparatively modest, reflected successful a median superior payment of a 25 ground constituent summation successful the Common Equity Tier 1 (CET1) ratio - which measures the prime of a bank’s assets, the study said.

"More worldly summation of much than 1% would apt bespeak an overreliance connected CRTs and truthful beryllium recognition negative," it said.

The full outstanding CRT balances for these banks exceeded $15 billion, referencing much than $150 cardinal successful assets, it said noting issuance measurement correlated with the size of the bank, which was besides a recognition positive.

Of the 26 surveyed banks with assets of $100 cardinal oregon more, 11 (42%) person issued CRTs and of the 43 rated banks with assets little than $100 billion, lone 4 (9%) person issued CRTs, it said.

Banks completed lone a fewer transactions, reflected successful a median of 3 transactions and backed by precocious prime performing assets. The astir progressive CRT issuers thin to beryllium the planetary concern and cosmopolitan banks, it said.

CRT investors were besides rather concentrated, with the largest capitalist holding astir 40% of a bank’s full CRT vulnerability and the apical 3 investors holding astir 80%. Most banks’ CRTs had nary much than 10 investors, the survey found.

Most caller CRT issuance successful 2025 is apt to travel from banks that person already engaged successful specified transactions and astir of the survey respondents that had not already participated said they were improbable to bash so, said Moody’s.

(Reporting by Shankar Ramakrishnan; Editing by Lincoln Feast.)