These deals help banks meet capital requirements more efficiently, allowing them to keep lucrative businesses that would otherwise become unprofitable.
Investors in these deals include lightly-regulated entities like hedge funds, shifting risk to the shadow banking sector.
Credit risk transfer is another tool for them to pursue after the Fed’s clarification on what is allowed, said Cory Wishengrad, head of fixed income at Guggenheim Securities.
That means Merchants sold the riskiest tranche of the loan portfolio, maximizing the capital relief it could get on it.
Whether U.S. regulators will allow such insurance deals to qualify for capital relief is still untested, Staudinger said.
Persons:
Morgan Stanley, Blackstone, Jill Cetina, Jon, Claude Zucconi, Zucconi, Michael Barr, Barr, Banks, Missy Dolski, Sam Graziano, Graziano, Cory Wishengrad, Jed Miller, Taft, Morgan Stanley's, Morgan, Deborah Staudinger, Hogan Lovells, Staudinger, Shankar Ramakrishnan, Paritosh Bansal, Nick Zieminski
Organizations:
Blackstone Group, JPMorgan Chase, Merchants Bank of Indiana, US Bancorp, Investors, JPMorgan, Merchants Bank, Federal Reserve, Varde Partners, Financial, Guggenheim Securities, U.S . Bank, Fed, Reuters, Merchants, Thomson
Locations:
U.S, Wickersham, Europe, Indiana