A clarification of capital rules by the Federal Reserve may encourage U.S. banks to transfer more of the risk in their loan portfolios to investors, potentially letting them free up capital.
The Federal Reserve on Thursday clarified rules around capital treatment of a type of structured debt which involves the sale of credit-linked notes that carry the risk of losses on U.S. bank loan portfolios to investors. The
“There has certainly been growing interest in these transactions as banks seek regulatory capital relief," said Missy Dolski, global head of capital markets at alternative investment firm Varde Partners, an active investor in such products. Directly issued credit-linked notes could also qualify but would need to be approved by the Fed, said the Q&A. These instruments are issued by a bank, but not through a SPV.
Data on them are not public but banks supervised by the European Central Bank completed a record 174 billion euros of such deals last year, Major U.S. banks contacted for comment on the impact of the guidance either declined comment or did not immediately respond.
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