Wall Street to Follow Canada’s Hot Risk Transfer Trade
- Canadian banks quickly loading up on synthetic securitizations
- US banks also expected to use the trade to tackle Basel rules
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A little-watched corner of Canada’s credit market is being shaken up by the country’s largest lenders as they pile into securities that shift credit risks to other investors — a play likely to be copied by their counterparts on Wall Street.
Canada’s ‘Big Five’ have quickly ramped up the use of synthetic risk-transfer tools, which allow them to partly pass the risk of loans going sour to private investors. The push comes as they face tougher regulatory requirements on capital buffers.