The rise and risks of synthetic risk transfers

Prashant Babu, Michael Chui and Costas Stephanou

BIS Quarterly Review, 2026

Abstract: Synthetic risk transfers (SRTs) are used by banks for capital and credit risk management. They have grown significantly in recent years but remain small relative to bank balance sheets. European banks have traditionally dominated SRT issuance, but their North American peers have seen an increase in issuance more recently. SRT-related risks appear to be modest at present. However, this may change as the market expands, structures become more complex and banks rely more heavily on non-bank financial institutions for credit protection. Limited and fragmented information heightens the potential for SRT-related risks to build undetected, highlighting the need for enhanced monitoring of risks for individual banks and from a systemwide perspective.

JEL-codes: G18 G21 G22 G23 G28 (search for similar items in EconPapers)
Date: 2026
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