The European Banking Authority (EBA) has raised concerns about “circles of risk” arising from banks financing investors who take on credit risk from other lenders through synthetic risk transfers (SRTs). As SRTs, which constitute over half of EU banks’ €1tn securitizations, grow, the EBA warns they may inadvertently create risks for banks, while also noting the banking sector’s current resilience amid rising profits and expected increases in shareholder payouts.
Explain It To Me Like I’m 5: Europe’s banking watchdog is worried that banks might be taking on hidden risks by lending money to investors who are also borrowing from other banks, creating a tricky situation.
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