Changing the tune but not the tone: synthetic risk transfers in Europe

Keynote speech by Pedro Machado, Member of the Supervisory Board of the ECB, at the LBBW Fixed Income Forum

Frankfurt am Main, 24 March 2026

It is a pleasure to be here today at the LBBW Fixed Income Forum in Frankfurt to discuss securitisation – a topic of central importance to many of us in this room and also firmly at the top of the European regulatory agenda.^[1] Securitisation sits at the crossroads of prudential policy, capital markets development and financial stability, and this junction has rarely been as busy as it is today.

Securitisation remains a polarising topic among market participants and policymakers. For some, it is a crucial tool to free up bank balance sheets, diversify funding sources and channel credit to households and firms. For others, memories of the global financial crisis still loom large, and securitisation is viewed primarily through the lens of past excesses and systemic risk.

In this context, it is worth remembering that securitisation is a family of financial techniques rather than a single product. Alongside traditional, funding-oriented term transactions, a rapidly growing share of the market now consists of capital-relief structures and, in particular, synthetic risk transfers.

Today, against the background of the ECB’s Opinion of November 2025^[2], and the reports published recently by the Basel Committee on Banking Supervision^[3] and the Bank for International Settlements (BIS)^[4], I would like to focus on the growing role of synthetic risk transfers and reflect on what we can realistically expect going forward. This reflection appears to be well-timed, especially in view of the Council of the European Union’s recent position on reviving and simplifying the EU’s securitisation market ahead of negotiations with the European Parliament.^[5]

Synthetic risk transfers – what are they and why do they matter?

I will start by looking at synthetic risk transfers in detail.

As I explained in September 2025^[6], the synthetic risk transfer market is no longer a quiet corner of banking sector. It has become a growing mechanism for financial institutions to manage their balance sheets, release capital and – crucially – support the real economy by creating capacity for new lending. With this growth comes increased scrutiny and the need for a clear and robust framework.

But what do we mean, concretely, when we talk about synthetic risk transfers? In essence, a synthetic securitisation is a guarantee on one or several tranches of credit risk from a loan portfolio. Investors receive a fee for providing this protection, while the underlying loans remain on the balance sheet of the originator. So synthetic securitisations do not provide funding to the originator, they are not usually traded on a secondary market, although they can still be transferred to new investors in the form of credit-linked notes, and they are often not externally rated.

From a prudential perspective, synthetic securitisations are a tool for banks to transfer credit risk to third parties. Where the supervisor, in many cases the ECB, is satisfied that the transfer is significant, the regulatory framework allows the bank’s capital requirements on the securitised exposure to be reduced so that they more closely reflect the risk the bank actually retains. In practice, this means we assess both individual transactions – to determine whether they achieve significant risk transfer – and banks’ overall risk management frameworks to ensure they are equipped to originate sound risk transfer securitisations and do not rely excessively on them for capital planning.

The expansion of the EU synthetic market has been thoroughly documented, notably through the work of the European Systemic Risk Board.^[7] By the end of 2023, the EU had established itself as the largest market for synthetic securitisations in the world, representing half of the global outstanding amount, while the United States accounted for only 20%. Among significant institutions, the volume of synthetic securitisations has seen strong growth in recent years. The volume of synthetic risk transfer issuances almost doubled between 2023 and 2025, and it increased by around 45% between 2024 and 2025. This growth is consistent with the continuous rise in transactions aimed at achieving significant risk transfer.

Why has this market grown so rapidly? A key explanation lies in the advantages of synthetic securitisations: they are cheaper to issue than traditional securitisations and enable banks to transfer significant credit risk, which can lower capital requirements. While initially reliant on a limited number of investors, the market has recently attracted new investors. As a result, synthetic securitisation can become an increasingly appealing tool for originators.

Beyond the sheer growth in volume, it is equally important to focus on how this instrument is used for managing bank balance sheets; recent micro-evidence based on euro area data supports this point.^[8] Transfers are more likely for exposures that are deemed more capital‑intensive under the regulatory framework. In other words, synthetic securitisation can be used to optimise how capital is used across portfolios. This underlines why supervisors need to assess significant risk transfers in a broad prudential context, including how banks select loans and redeploy released capital and how leverage and risk evolve after the transaction. For instance, as part of our regular monitoring of market development, we are conducting a new survey with a broad set of banks to analyse practices in synthetic risk transfer financing, including the provision of funding by significant banks to investors in securitisations originated by other banks.^[9]

There are additional considerations from a financial stability perspective.^[10] There is some evidence of weaker post‑transfer monitoring incentives: banks appear to update internal borrower risk assessments less frequently after a synthetic transfer. In addition, investors that buy protection often have an existing relationship with the originating bank and their debt tends to rise before some transactions. At the same time, observed leverage for these investors is modest on average, suggesting that system‑wide round‑tripping risks are likely contained. Taken together, these patterns point towards a policy approach that favours transparent structures and pays close attention to interconnectedness between originators and protection providers.

Synthetic risk transfers – an international perspective

Building on this picture of a fast‑growing and increasingly important synthetic risk transfer market, it is clear that we cannot look at these instruments in isolation from the global regulatory context. The cross‑border nature of participants and structures means we need to be closely aligned with international standards.

In this regard, the Basel Committee has recently concluded that the reforms implemented since the global financial crisis make synthetic risk transfer securitisations simpler and encourage more scrutiny from supervisors compared with before 2008.^[11] It also notes that the risks from synthetic risk transfer securitisations, such as banks’ increased dependence on non-bank financial institutions via synthetic risk transfer markets, are acknowledged and – to an extent – actively managed by originators and investors.

That being said, continued monitoring by supervisors is warranted as synthetic risk transfer markets continue to grow. The Basel Committee also emphasises that blind spots remain with regard to disclosure and synthetic risk transfer financing activities.

These findings were confirmed more recently by the BIS^[12], which assesses the main risk channels from synthetic securitisations as still modest and evolving. From a microprudential supervisory perspective, the BIS highlights the need for greater information sharing between supervisors, as well as a regulatory and supervisory focus on rollover risk and procyclical behaviour.

The BIS sees significant risk transfers as an expanding, but still moderate, component of banks’ overall risk‑bearing capacity. It documents strong issuance growth, especially in Europe, the United States and the United Kingdom, while noting that protected assets remain a relatively small share of bank balance sheets. It also emphasises that post‑crisis reforms have generally made structures simpler and more robust than they were for pre‑2008 credit risk transfers, with funded formats and upfront collateral now very common. Nevertheless, the BIS also stresses that transparency continues to be limited by disclosure gaps, private bilateral deals and uneven data on how investors fund their positions.

On the policy side, the BIS finds that significant risk transfers can be a useful tool for capital and credit‑risk management. It also flags three issues: (1) rollover risk if banks become too dependent on renewing maturing transactions; (2) potential procyclicality if non‑bank protection providers withdraw in periods of stress; and (3) risks from interconnectedness when banks themselves provide funding to investors linked to significant risk transfers. In light of this, the BIS argues for continued supervisory scrutiny focused on the effectiveness of risk transfer, maturity profiles, the concentration of providers, funding channels and improved disclosure.

The Basel Committee and BIS assessments are generally consistent with the ECB’s view – we have made our position clear that continued risk monitoring is needed if issuance of synthetic securitisations continues in line with current trends or if it accelerates.

The ECB Opinion confirms that a securitisation framework that is functioning well can support both financial stability and the financing of the real economy. At the same time, it sounds a note of caution: regulatory adjustments alone will not be sufficient to revive the market in Europe given the structural differences with other jurisdictions. In particular, the ECB emphasises that the objective should continue to be a genuine transfer of risk to a diversified investor base, combined with simple and standardised structures that are resilient across the cycle. This is especially relevant in the context of synthetic securitisations, where the lack of disclosure and the reliance of a growing number of issuers on a narrow base of non-bank investors require careful monitoring.

Against this backdrop, the ECB has also highlights that the increasing use of synthetic securitisations may create system-wide vulnerabilities if not properly managed, notably through leverage effects, rollover needs and the dependence on the resilience of protection providers. This reinforces the importance of looking beyond transaction-level metrics and assessing synthetic risk transfers within the broader balance-sheet and system-wide context.

Simplification – a fast-track process

Recognising the need to continuously improve its processes, the ECB has partnered with industry to develop a fast-track process for simple securitisations. This has now been in effect since January. It is a new process that significantly reduces the time to market for originators, shortening the ECB’s assessment period from three months to just eight working days. It also helps new issuers better understand supervisory expectations and the ECB’s approach to significant risk transfer. By streamlining processes and fostering clarity, this initiative is expected to contribute to a more robust and dynamic EU securitisation market.

The success of this fast-track process will ultimately depend on banks. Their willingness and ability to adopt sufficiently standardised and simplified securitisation structures will be critical. By embracing these streamlined approaches, banks can benefit from faster approvals and play a vital role in expanding and simplifying the EU securitisation market. The opportunity is clear – it is time for banks to take the lead in utilising this fast-track pathway.

At the same time, simplification should not come at the expense of transparency or risk sensitivity. As emphasised in the ECB Opinion, efforts to streamline due diligence, disclosure and prudential requirements must remain proportionate and targeted, ensuring that essential information for investors and supervisors is preserved and that incentives for sound structuring are maintained.

We have started to receive the first notifications under this new fast-track process, but it is still too early to draw conclusions.

Conclusion

Let me close with three reflections.

First, synthetic risk transfers are no longer a niche product, they are now part of how Europe’s banks manage capital and support their lending capacity. This makes it essential for the market to develop on solid foundations: with clear rules, sufficient transparency and structures that remain resilient in times of stress.

Second, it is important to strike the right balance: enabling innovation and efficient use of capital, while safeguarding financial stability. Tools such as the new fast‑track process illustrate how we aim to support a simpler, more predictable and more robust securitisation framework in Europe. But simplicity, standardisation and genuine risk transfer must remain at the core of the framework, while avoiding a build-up of new vulnerabilities as the market expands. With the adequate guardrails in place, securitisation, including synthetic risk transfers, can become part of Europe’s solution to its investment challenge, rather than a source of future instability. For this, market growth should proceed in sync with investor demand, with new investors needed to match the growing number of originators. Solutions based on increased leverage or on the repackaging of securitisation notes to support the demand would not be conducive to a sustainable market.

Third, securitisation cannot be seen in isolation. It is part of a broader effort to strengthen Europe’s competitiveness and to mobilise private capital more effectively. In that context, synthetic securitisations can be a useful tool, but they are not a substitute for deeper, more integrated capital markets. As Mario Draghi underlined in his report on competitiveness, Europe needs to better channel its high level of savings into productive investment, and that requires deeper and more integrated capital markets.^[13]

We are changing the tune in Europe – but we should not be changing the tone. The commitment to stability and prudent risk management should remain unchanged.