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The US Significant Risk Transfer (SRT) market, still in its early stages, faces an uncertain future as the final implementation of Basel III Endgame has been upended. With capital requirements for the largest US banks expected to drop, some market participants worry SRTs could lose their momentum and growth stall.

However, banks issue SRTs for a variety of reasons — not only for regulatory capital relief. Even if some US G-SIBs looked overcapitalised going into the year, that does not mean they will not issue SRTs.

US G-SIBS still face capital charges for which SRTs can be useful. Further, the more programs become entrenched in bank structures, the more SRT is being thought of as a tool to optimise and redeploy capital in various parts of the bank.

SRTs at their core allow risk transfer, so part of getting capital relief is proving to your regulator it is an effective risk mitigant. Some large US banks are leaning into this ethos and taking a risk focus of the product.

With spreads as tight as they are, SRTs have become a very cheap hedge that helps unlock ancillary business.

Some large US issuers use the tool more explicitly as an economic hedge for parts of their portfolio.

“It is all risk focus right now,” said a large US issuer. “We have a call with investors for each deal to warn about losses