SRT and Capital Relief
Definition
Attachment Point
The loss level in the reference portfolio at which the protection seller (investor) begins to bear losses. EU SRT mezzanine: typically ~1–3% attachment point.
Deep Dives
Related Terms
Significant Risk Transfer (SRT)
A securitisation or synthetic structure where a bank transfers a material portion of credit risk of a reference portfolio, satisfying regulatory tests that allow reduction of regulatory capital. EU test: quantitative (RWA ratio) or qualitative; EBA Guidelines (July 2023) govern assessment.
Detachment Point
The loss level at which the investor's tranche is fully exhausted. EU SRT mezzanine: typically ~7–9% detachment point; losses above fall to the bank's retained position.
First-Loss Tranche
The most junior tranche; absorbs losses first. Banks typically retain 0.5–1.5% of portfolio as first-loss in EU SRT. Risk retention requirement (5%) often satisfied by this piece.