SRT Training For New Market Entrants 2025

New issuers, especially smaller banks, typically face two sets of challenges when exploring whether to execute a capital relief trade. The first challenge is achieving senior management buy-in regarding the benefits of synthetic securitisations and marshalling the necessary resources to support such an issuance. The second challenge is providing sufficient visibility on a portfolio for an investor to re-underwrite it, including preparing a substantial amount of historic default and loss data. This module outlines all of the factors a prospective CRT issuer will need to consider when putting together a feasibility study and business case proposal for their board.

The Basel 3.1 (also known as Basel 3 Endgame and Basel 4) reforms are set to fundamentally reshape the banking landscape. Arguably the most significant impact on capital requirements will arise from the implementation of the output floor, which will cap the benefit that can be obtained from internal models and drive inflation in RWAs. As such, the output floor could radically change the way banks manage capital, including by managing it at an overall portfolio level. This module highlights the operational and cultural changes being driven by Basel 3.1, in terms of the processes for calculating capital requirements and how capital is perceived and understood within a business

Capital relief trades are structured in several formats, employing different structural features to achieve a variety of outcomes. This session will introduce the CRT structures most commonly used by practitioners and discuss how structuring choices drive risks for originators and investors in each case. We will then explore certain core transaction features, including amortisation profiles, termination events, synthetic excess spread and homogeneity criteria.

The regulatory framework for CRTs in Europe has evolved since the implementation of the EU Securitisation Regulation in January 2019, culminating in the inclusion of SRT transactions in the STS regime. The EBA’s 2020 SRT report also brought much-needed clarity around how to achieve risk transfer and gain regulatory approval for a trade. This module will explore a selection of key regulatory requirements as they relate to structuring and documenting an SRT deal, as well as how they impact investor and regulatory engagement.

Failure to pay and bankruptcy are the two standard credit events for CRTs, although restructuring has also appeared to a limited extent following the Covid-19 crisis. This module addresses the scope of credit events definitions and loss settlement mechanisms, including quantifying the availability of protection, the timing of protection payments and verification methods.

The structural complexity and statistical nature of CRTs lend the asset class to quantitative modelling, especially in light of the uncertainties represented by amortisation, replenishment and call mechanisms. This module seeks to assess the extent to which these elements affect performance and drive risks, explain certain risk parameters and show how downs

In this session we will cover the key aspects related to the operational management of SRT transactions. This will include: waterfall calculations (including replenishment, handling of triggers, management of defaults) as well as reporting towards investors and regulators. We will discuss key aspects related to ESMA templates, COREP reports and other reporting requirements.

This session will explore the issuer considerations and negotiating processes that drive portfolio selection, structuring choices and transaction pricing. We investigate why a bank may decide to execute a syndicated versus bilateral, funded versus unfunded and synthetic versus true sale transaction depending on the reference portfolio.

The utilisation of unfunded protection in CRTs continues to rise, both as a complement to funded synthetic tranches and in terms of fully unfunded transactions. From a (re)insurer perspective, the SRT product can be appealing for a variety of reasons, while banks are increasingly seeking to broaden and diversify their SRT distribution channels. This session will explore the motivations behind executing unfunded deals, the efficiencies of employing various SRT distribution options and other regulatory, accounting and tax aspects to consider when planning a transaction.

Gain insight into how PGGM, active in this field since 2006, approaches investing in Credit Risk Sharing transactions, laying out the foundations on which its investment approach has been built and sharing the knowledge built over time. During this module, PGGM’s approach to due diligence, structuring, pricing and monitoring will be discussed, flagging where investors should pay specific attention and highlighting the ‘things to consider’ in relation to transaction terms. The objective is to contribute to transparency on relevant risk and return drivers and how they can be analysed and assessed under the motto: ‘it’s fine to take risks, as long as you know which ones you take’.

While Europe has long been the pioneer of CRT transactions in terms of both issuing banks and investors, the North American market is beginning to catch up. Canadian banks rushed to issue after the OFSI brought forward to 1 January 2023 the implementation of Basel 4 and the output floor in the jurisdiction. Meanwhile, the US Federal Reserve served to green-light risk transfer with its clarification of the definition of CLNs in September 2023. This module outlines the opportunity set that is emerging across the region and the factors that differentiate it from the European experience.