ECB Urges Caution on Synthetic SRTs in Securitization Overhaul

The European Central Bank, wary of lenders’ over-reliance on synthetic risk transfers, is urging issuers to use other ways of securitizing assets, according to people familiar with the matter.

In a forthcoming opinion, the ECB will argue that shifting credit risks off the balance sheet through so-called synthetic significant risk transfers could expose banks to refinancing risks during market stress, according to people familiar with the matter. Instead, the ECB wants banks to carry out more deals known as cash SRTs that get rid of the actual loans and not just the attached credit risk, the people said.