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ARTICLE · 02 MARCH 2020

Capital Relief Trades: Structuring Considerations For Synthetic Securitizations

Mayer Brown
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A US bank may be interested in a synthetic securitization for a variety of reasons, including risk mitigation through the sharing of credit risk with investors or financing assets that cannot easily be sold or transferred in a traditional securitization.

United StatesFinance and Banking
Curtis Doty
Curtis Doty
Julie A. Gillespie
Julie A. Gillespie
Lawrence Hamilton
Lawrence Hamilton
Carol Hitselberger
Carol Hitselberger
Matthew F. Kluchenek
Matthew F. Kluchenek
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(A three-part series providing a US and UK perspective)

Why Are US Banks Interested in Synthetic Securitizations?

A US bank may be interested in a synthetic securitization for a variety of reasons, including risk mitigation through the sharing of credit risk with investors or financing assets that cannot easily be sold or transferred in a traditional securitization. However, the primary reason for engaging in a synthetic securitization is typically the release of capital.

Under the US capital rules,1 banks are able to reduce risk-based regulatory capital required for residential mortgage and other loan portfolios by converting exposures from wholesale or retail exposures to securitization exposures. This is due to the fact that the risk-weight under the US capital rules for typical senior securitization exposures is 20 percent, while the risk-weight for most other exposures is 100 percent for banks using the standardized approach.2 That means a

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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