Regulation

Banks warned against dodging capital rules through risk transfers

Lenders are increasingly offloading credit risks from their balance sheets, but the Bank of England says some deals are ‘imprudent’

Threadneedle Street has become the latest regulator to take aim at the significant risk transfer market
Threadneedle Street has become the latest regulator to take aim at the significant risk transfer market Photo: Jose Sarmento Matos/Getty Images

The Bank of England has warned lenders that they must still meet its capital rules as they increasingly look to offload credit risk to third-parties through so-called significant risk transfers.

Banks have used significant risk transfers for years to transfer credit risks in an asset pool to investors such as private credit funds, which agree to to bear a share of loans that fail in exchange for a fee.

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