Finance
Bank 'risk transfer' boom needs close monitoring, Basel Committee warns
Published by Global Banking & Finance Review®
Posted on February 17, 2026
3 min readLast updated: February 17, 2026
Quick Summary
The Basel Committee warns of vulnerabilities in the growing bank risk transfer market, urging closer monitoring of synthetic risk transfers.
Basel Committee Urges Vigilance as Bank Risk Transfer Market Expands
The Rise of Synthetic Risk Transfers
By Tommy Reggiori Wilkes
Impact on Lending and Capital Requirements
LONDON, Feb 17 (Reuters) - Banks are increasingly turning to bespoke deals with private investment funds to shed credit risk, but the market needs close monitoring as it spawns new vulnerabilities for the global financial system, the world's forum for banking regulators said.
Concerns Over Shadow Banking
These "synthetic risk transfers" (SRTs) involve a bank selling all or part of the credit risk of a group of assets to investors such as hedge or pension funds. They allow banks to free up capital while maintaining their client relationships.
Need for Closer Supervision
SRTs are not new, but they have proven particularly popular in the European Union, with new transactions more than tripling between 2016 and 2024 after EU regulatory changes provided some synthetic securitisations preferential prudential treatment, the Basel Committee on Banking Supervision said in a report on Tuesday.
U.S. volumes have also jumped following regulatory clarity in 2023 on how the deals are treated under bank capital requirements, added the committee, which is made up of banking regulators and central bankers from the G20 economies and other countries.
Among European banks, Britain's Barclays, Austria's BAWAG and Greece's Alpha are the heaviest users of SRTs relative to the size of their corporate loan books - with the average listed lender using them to cover about 12% of those loans, the report said.
WORRY OVER 'SHADOW BANKING' TIES
The committee said SRTs help banks boost lending that is subject to lower capital requirements but warned that heavy reliance on them left lenders exposed to the health of non-financial intermediaries buying the risk. If those investors falter, this could affect the flow of credit.
"A contraction in credit caused by a protracted freeze in SRT markets could exacerbate an economic downturn and increase stress in the non-financial sector, possibly triggering an adverse deleveraging feedback loop," the committee wrote in the report.
Regulators globally are concerned about the growth of non-bank intermediaries involved in what is often referred to as 'shadow banking', because of a lack of transparency and the possibility of new risks that could endanger broader financial stability.
The committee's report also highlighted risks over growing links between banks and non-banks - because banks often finance the very investors buying the credit risk - as well as opaque individual deals and weakening underwriting standards.
While some of these risks are being monitored and addressed, the committee said closer supervision was needed as further growth of the SRT market could multiply the risks.
(Reporting by Tommy Reggiori Wilkes, additional reporting by Valentina Za in Milan; Editing by Emelia Sithole-Matarise)
Key Takeaways
- •Basel Committee highlights the growth of synthetic risk transfers.
- •Concerns over shadow banking and financial stability.
- •EU and US see significant increases in SRT transactions.
- •Heavy reliance on SRTs could pose risks to banks.
- •Closer supervision is needed to manage potential vulnerabilities.
Frequently Asked Questions about Bank 'risk transfer' boom needs close monitoring, Basel Committee warns
1What is a synthetic risk transfer?
A synthetic risk transfer (SRT) is a financial agreement where a bank sells part of its credit risk associated with a group of assets to investors, allowing it to free up capital while retaining client relationships.
2What is shadow banking?
Shadow banking refers to non-bank financial intermediaries that provide services similar to traditional banks but operate outside normal banking regulations, potentially posing risks to financial stability.
3What are capital requirements?
Capital requirements are regulations that determine the minimum amount of capital a bank must hold to ensure its stability and ability to absorb losses, thus protecting depositors and the financial system.
