Synthetic securitisation as a key capital and risk management tool for the Greek banking sector

18/07/2022

Key takeaways

HFSF in collaboration with PCS published a bulletin focusing on the role Synthetic Securitisation can play in managing capital and credit risk for Greek Banks.

This analysis describes the basic structures, the main practices applied and the benefits that can be derived for Greek Banks and the Greek economy as a whole, from using Synthetic Securitisation. The inclusion of synthetic securitisation to the Simple, Transparent and Standardised (STS) framework provides additional benefit due to the lower capital requirements under the Capital Requirements Regulation.

Synthetic securitisation is a mechanism that allows banks to reduce their exposure to specific sectors and/or geographies by transferring their risk to external investors, enhancing banking system’s resilience by safeguarding it from shocks derived from the assets that were synthetically securitised.

The most notable benefits for the Greek banking system and the economy as a whole are: (a) the freeing of existing capital (reduction of capital adequacy requirements)  for Banks and thus the increase of their lending capacity to the real economy, (b) the capital inflows  from a more diversified foreign investor base  and (c) the mitigation/hedging of credit risk and specifically of concentration risk and consequently the support of the banking system’s financial stability; Overall, synthetic securitisation should be a key tool in a banks arsenal, in order to manage capital efficiently and simultaneously reduce credit risk on an ongoing basis.

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