Ally, Truist Get Fed Approval to Use CLNs to Cut Capital Buffers

The Federal Reserve said Ally Financial Inc. and Truist Financial Corp. can use a type of derivative transaction to reduce the capital requirements tied to their auto-loan portfolios, joining other banks seizing on the regulator’s shifting approach toward the tactic.

The Fed said their issuance of synthetic securitizations known as credit-linked notes — which shift risk to investors without taking the loans off a bank’s books — would allow them to cut how much they need to set aside to cover potential losses on the debt, according to approval letters from the regulator, which were issued in March and this ...