banks just found a loop hole(im shocked! shocked!)

It is designed to allow banks to satisfy regulatory requirements that a “significant risk transfer” has taken place on risky assets they hold, allowing them to reduce the amount of money they must keep in reserve as a buffer in case such instruments turn sour. While the strategy is not new – CRC has specialised in making such investments with European banks since 2002 – the latest fund aims to be... [more]

It is designed to allow banks to satisfy regulatory requirements that a “significant risk transfer” has taken place on risky assets they hold, allowing them to reduce the amount of money they must keep in reserve as a buffer in case such instruments turn sour. While the strategy is not new – CRC has specialised in making such investments with European banks since 2002 – the latest fund aims to be by far the manager’s largest offering yet. With many banks under pressure from regulators to de-risk balance sheets on the one hand and from politicians to lend to small businesses and consumers on the other, demand for capital relief transactions is growing. “CRC estimates that the first Capital Release Fund will tap less than 1 per cent of potential demand from European banks,” one marketing document said. CRC, based in New York and London, was founded in 2002 by former Dai-Ichi Kangyo bankers Richard Robb and Johan Christofferson and has about $1.3bn in assets under management. The CRC Capital Release Fund will work by entering into “bilateral synthetic securitisations” with banks, whereby the fund will effectively buy a small amount of exposure to the riskiest portion of a segregated pool of bank assets, cushioning the bank with a “first loss” position. The potential capital unlocked could be large, fund documents said. In one example, the fund could reduce money required to be set aside by a bank against a €3bn ($4.1bn) pool of enterprise loans by up to 85 per cent. The fund is expected to make between seven and 15 deals with four to six European banks. It is targeting an average annual return of 20 per cent over its lifespan. http://www.ft.com/cms/s/0/4c5b72b2-e215-11df-9233-00144feabdc0.html [less]