Now that we are casting our life rings to one side, the question is……. do we dare dream bigger than that? 

Time and again we hear that revitalising the securitisation market is a key priority. But what will this revitalised (some might say revived) securitisation market look like? 

SRT (significant risk transfer) has certainly become the buzz-word of the moment. Banks can utilise SRT transactions to reduce the amount of capital they need to maintain and thereby optimise their balance sheets. This isn't new. Banks have been using SRT strategies to reduce risk weighted assets since the 1990's. But the market has experienced significant growth over the last five years thanks to increased use by banks and a supportive regulatory framework. The European SRT market is currently estimated to be at over EUR 200bn of notional value but it is in the US that the greatest increase in market size has been experienced, jumping from around $17bn to $68bn in a year. 

Various reports are predicting that the boom is far from over and if they are to be believed we are likely to see continued growth over the next few years. But we must remember that the SRT market isn't a singular market. Both synthetic and cash SRT's are available from a regulatory perspective, but synthetic SRT issuance have historically far outweighed cash SRT issuances. Some of that is asset class driven - synthetic securitisations predominantly favour loans to corporates and to small and medium-sized entities (SMEs), as well as residential mortgages and auto loans. Traditional securitisations on the other hand are mostly built on commercial mortgages portfolios, auto loans, consumer loans and leasing exposures. Only a small volume of residential mortgages are found in traditional deals. There are many factors which drive this difference in approach, including concerns around confidentiality restrictions on underlying assets, rating requirements and investor preference. 

Synthetic SRTs make up roughly 80% of the market, there is no denying their importance. But fueled perhaps by the recent British weather rivaling that in Barcelona a few weeks ago, or maybe just as an eternal optimist, what if we strive for more?

What if there was a tool available that offered not just capital relief, but also a source of funding? What if, subject to satisfying certain conditions, it allowed those assets to also be de-recognised from an accounting perspective? What if it also allowed an investor to achieve its ESG goals ? 

Cash, as they say, is king and cash SRTs can do just that. 

The last few months have seen an increase in cash SRT deals with the focus on consumer loans and auto loans. Not all asset classes lend themselves to full stack public deals but for high APR pools cash deals can offer advantages and with interest rates leveling off this growth trend is likely to continue. There will clearly always be cases where the only option is to issue a private synthetic but where there is an option of a public cash deal this can be a very useful complimentary tool.  

A wise woman once said that insanity is doing the same thing over and over and expecting different results*.

If we are truly to see a revitalised securitisation market we need to do more than follow the well-trodden path. We need to embrace the slightly trickier, slightly more challenging side of the market and we need to consider all options. It is there, at the edges of what we think is possible, that we start to see the biggest rewards. 

_{*often attributed to Albert Einstein, the best evidence suggests that it was Rita Mae Brown who first authored this quote.}