Europe Seeking Data on Bank Lending to SRT Buyers, Campa Says | Company Business News

(Bloomberg) — European authorities are pushing banks to disclose more data on loans to investors who turn around and use the funds to help peers offload credit risk, according to a top regulator. 

Regulators want to ensure that risk is actually leaving the system when banks use significant risk transfers, or SRTs, to free up capital while keeping the assets on their balance sheets.

“We’ve been asking for more transparency, more reporting information,” Jose Manuel Campa, who leads the European Banking Authority, said in a Bloomberg TV interview on Monday in London. “Potentially you get a vicious circle by which a bank sells protection to somebody that’s been financed by another bank.” 

SRTs allow banks to insure loans against default by selling credit-linked notes to pension, sovereign wealth and hedge funds. SRTs have been growing in popularity in recent years, particularly among European lenders. BNP Paribas SA, Intesa Sanpaolo SpA, Standard Chartered Plc and ING Groep NV are currently discussing or finalizing such deals, Bloomberg has reported.

The EBA said on Friday that some 20% of European banks that have never engaged in SRTs plan to do so, while around three quarters of those that have plan to keep doing so.

The authority is working on the issue of leverage in SRTs with the European Securities and Markets Authority and the European Systemic Risk Board, Campa said. On a global level, the Financial Stability Board has also asked more transparency, he added.

–With assistance from Guy Johnson and Valerie Tytel.

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