Deutsche Bank managed to incur only €18 million in losses from the Wirecard scandal, despite significant exposure to the company. This minimal loss, compared to fellow German lender Commerzbank's €175 million hit, is attributed, at least in part, to the bank's use of 'synthetic risk transfer' (SRT). SRT allows banks to offload some loan risks to investors, reducing capital requirements. The IMF's recent recognition of SRT highlights its growing prominence in the financial landscape, particularly within the expanding relationship between private credit and traditional banking.
When Wirecard went belly up a few years ago, Deutsche Bank ended up with a loss of just €18mn — miraculously little for a bank that had up until then made a habit of ambling into nearly every major financial cow pie in the world. And this had been a giant pile of manure right on its own doorstep. Deutsche had previously underwritten Wirecard bonds, arranged loans for the company, and handed its chief executive a giant margin loan. Fellow German lender Commerzbank took a €175mn hit.
thought we’d poke around to find out a bit more about the latest booming three-letter acronym. There’s an old saying in Norwegian that “a dear child has many names”. In reality, synthetic risk transfers are not quite as novel as the fairly new moniker may imply. Synthetic risk transfers are often also called “significant risk transfers”, but both terms are iterations of what used to be called CRT — for “credit risk transfer” or “capital relief transactions”.
: Even the European Systemic Risk Board now says that “the importance of the SRT securitisation market for European banks and the European economy cannot be overstated”. But some people reckon the days of this rare area of European financial dominance will soon fade.
, Donald Trump winning the US presidency casts a big fat shadow over the planned implementation of the final details of post-crisis bank regulations. If it gets scrapped altogether, a lot of the capital pressures on many US banks will dissipate and lessen the need for SRTs. However, most people still expect the Endgame rules to be implemented in some form or fashion. Even if they are dramatically watered down then many American lenders will still need to improve their capital ratios.
: “People just have to put the money to work.” Another admitted that it was akin to a “private credit arms race”. That’s usually not a great recipe for diligent credit work or appropriate risk compensation.
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