Banks Shed $500 Billion of Corporate Loan Risk in Europe (1)

Banks are going big on a product that’s drawing ever-closer regulatory scrutiny.

Lenders have stepped up their reliance on so-called significant risk transfer trades, complex deals in which banks offload some of the default risk from their loan books to hedge funds and other investors.

SRTs are booming because they help banks free up capital and boost measures of profitability. But the fast expansion of the market is also prompting authorities to seek greater oversight — and to better understand what risks or contagion could emerge if bad loans surge.

“Rapid growth in SRT issuance naturally attracts regulatory interest, especially ...