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De-Risking Banks through Synthetic Securitization and Credit-Linked Note Issuance

Published on June 5, 2024

W. Scott Frame explores how U.S. banks are leveraging synthetic securitization to optimize regulatory capital allocation. By issuing credit-linked notes, banks transfer credit risk to external investors. Frame discusses the economic incentives driving these transactions, details the two prevalent transaction structures, and highlights cases where the federal government requires similar risk transfers to minimize taxpayer exposure.

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