In the current financial landscape, North American banks are contending with significant cyclical and structural challenges. Among these are changes to capital rules, a difficult interest rate environment, and increased competition from non-bank credit providers that is quickly impacting the business models of traditional banks. One option for managing through the uncertainty and volatility is the use of Credit Risk Transfer (CRT) solutions.
Utilizing the collective expertise in executing Non-Payment Insurance (NPI) and CRT/Significant Risk Transfer (SRT) transactions for North American and European banks, we collaborated with Marsh McLennan, Marsh, and Guy Carpenter on a joint report, “Expanding the portfolio management toolkit: A primer on Credit Risk Transfer (CRT) solutions for North American banks”.
This report provides a detailed overview of the process, benefits, and strategic considerations involved in establishing CRT programs, structuring, and distributing CRT solutions, and assessing their impact on bank economics.
The role of CRT solutions in portfolio management and market evolution
CRT solutions are an essential tool that banks can use to mitigate credit risk, enhance capital efficiency, and facilitate strategic partnerships with insurers and private capital managers. Throughout our report, we cover a wide range of CRT mechanisms, including Non-Payment Insurance (NPI), funded CRTs, and unfunded CRTs, highlighting their role in improving banks' credit portfolio management. We also draw on the European SRT market's experience to illustrate the potential for CRT solutions in North America, emphasizing the importance of regulatory developments and the strategic benefits of adopting CRT solutions.
We discuss the importance of maturing CRT operating models, increasing regulatory clarification, and the potential acceleration brought about by the implementation of Basel III Endgame. The process, benefits, and strategic considerations of implementing CRT programs, alongside an examination of the evolving CRT operating models and the significance of analytics in risk management are also outlined. For banking professionals, investors, and financial strategists, this report offers valuable insights into the role of CRT solutions in advancing portfolio management and the broader CRT market evolution.
Read the report, here.