THE European Central Bank (ECB) is seeking to accelerate its approval process for significant risk transfers (SRTs), according to sources familiar with the matter, helping lenders to take advantage of booming demand for the deals.
Under new proposals, banks will be allowed to submit information for their SRT transactions to the ECB just two weeks ahead of deal completion, said the sources, who asked not to be identified because they are not authorised to speak publicly about the matter. This compares with the current requirement for a minimum of three months, said the sources.
In addition, the ECB aims to ask banks for fewer details about proposed transactions, the sources said. A pilot of the simplified process is due to start in January and run for around six months, they added.
A representative for the ECB declined to comment.
SRTs are often configured as credit-linked notes that enable banks to free up capital they otherwise would have to use to insure their own loans. The ECB requires banks to submit information on their planned SRTs as part of the regulatory process to allow them to obtain such capital relief.
Institutional investors that take on the portfolio risk often do so for returns in excess of 10 per cent. Still, a surge in the number of SRT transactions and the use of debt leverage to buy some of the notes have prompted the International Monetary Fund to flag concerns over potential financial stability risks.
Loans tied to SRTs have reached about US$1 trillion this year, according to data compiled by Chorus Capital Management.
The move to accelerate SRT approvals follows recommendations by a joint working group of ECB officials, representatives of around 12 banks and the European Banking Federation (EBF), the sources said.
A representative for the EBF declined to comment. BLOOMBERG
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