True sale vs synthetic: choosing the right structure for your SRT transaction
Significant Risk Transfer (SRT) transactions continue to be a critical capital management tool for banks. However, not all SRT transactions are created the same. But what are the key differences between a true sale and a synthetic securitisation?
SRT transactions are a vital tool for banks, allowing them to optimise regulatory capital and risk-weighted assets on their balance sheet., As the market matures, many institutions are seeking greater clarity around the trade-offs between the two main options in structuring an SRT: true sale and synthetic securitisations. Each comes with its own technical considerations, cost implications, and investor appetite.
Building on the foundational knowledge shared in the first article in this series, “How significant risk transfer is powering progress and unlocking capital efficiency," let’s take a look at a technical comparison of these two structures.
What’s the difference?
A true sale SRT involves the legal transfer of a portfolio of loans from the originating bank to a special purpose vehicle (SPV). The SPV then issues notes to investors, and the transferred loans are removed from the bank’s balance sheet, thereby isolating the risk. This structure is typically suited for certain portfolios (e.g., consumer loans) and for originators willing to assume the additional complexity of managing the transaction nuances.
In contrast, a synthetic SRT retains the loans on the originator’s balance sheet. Instead of transferring ownership, the bank uses credit derivatives (typically credit default swaps) or financial guarantees to transfer the credit risk of a specific tranche of the portfolio to investors. This structure is often used for corporate or specialised lending portfolios where legal asset transfer is impractical.
Both structures can achieve SRT treatment under the Capital Requirements Regulation (CRR), provided the transaction satisfies regulatory expectations, particularly the expectations the European Banking Authority (EBA) sets.
Operational considerations
When comparing true sale and synthetic SRT structures, several factors must be taken into account.
Cost and execution complexity
Cost is one of the first differentiators. True sale transactions generally involve higher upfront costs due to legal review, SPV setup and compliance with asset transfer protocols. They may also trigger borrower notifications and require changes to servicing arrangements. Synthetic transactions, on the other hand, tend to be faster and less expensive to execute, particularly for institutions with existing credit derivative infrastructure. By transferring credit risk rather than legal ownership, this structure avoids the complexities of asset transfer and can be structured using credit default swaps (CDS). For firms with existing credit derivatives infrastructure, the marginal cost of implementation is low. However, they may demand internal monitoring, model validation and more complex regulatory reporting requirements.
Ongoing operational complexity is another consideration. Both structures require close coordination across internal teams, external investors, and regulators. While true sale deals rely more heavily on third-party service providers, synthetic structures often allow for more streamlined execution, especially in multi-jurisdictional portfolios.
Investor preferences
Investor preferences also shape structural decisions. True sale SRTs are typically packaged as traditional securitisations, using familiar documentation that appeals to asset-backed securities (ABS) investors. Synthetic transactions tend to attract sophisticated institutional investors such as credit funds, insurers, and pension schemes who are seeking floating-rate, uncorrelated exposure to private credit risk. The introduction of the Simple, Transparent and Standardised (STS ) framework for synthetic securitisations in the EU has further broadened investor confidence, although U.S. regulatory constraints continue to limit participation from specific investor segments.
Regulatory considerations
Regulatory and accounting treatment is another important consideration. Both structures must meet the European Banking Authority’s SRT requirements, including quantitative thresholds for risk transfer and qualitative standards around investor independence. True sale deals typically qualify for derecognition of the transferred assets, which can improve balance sheet metrics and financial reporting. Synthetic structures, in contrast, keep the assets on the balance sheet, with recognised as a liability requiring careful alignment with accounting standards and internal capital goals.
Making your choice
In all cases, institutions must balance regulatory compliance, cost efficiency, investor interest and operational feasibility when selecting the most appropriate SRT structure. For banks with robust internal infrastructure and derivative capabilities, synthetic SRTs may offer faster execution. Other firms prioritising investor appetite may favour true sale SRTs despite the upfront complexity.
So, selecting the right SRT structure is not just a technical decision—it’s a strategic one that can shape capital efficiency, investor reach, and operational performance. And with the right expertise and execution, SRT transactions can become a powerful lever for balance sheet optimisation and long-term growth.
Talk to us
At TMF Group, we support financial institutions across the full lifecycle of SRT transactions. Whether you are executing a true sale deal or a synthetic structure, our experts offer end-to-end services including SPV setup and management, regulatory compliance, and multi-jurisdictional coordination. Learn more about how TMF Group can help you optimise your capital strategy through effective risk transfer.
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