8 November 2023
U.S. banks, facing stringent regulations and the impact of rising interest rates, are offloading risk by selling complex debt instruments known as synthetic risk transfers to private funds. This strategy helps banks mitigate regulatory capital charges and is attractive to investors seeking high returns. However, this move indicates a deeper shift on Wall Street, with private credit firms increasingly influencing the finance sector and assuming roles traditionally held by banks. These practices, reminiscent of pre-2008 crisis mechanisms, raise concerns about the potential for systemic risk in the financial system.