SRT and Capital Relief
Definition
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.
Deep Dives
Related Terms
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.
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.
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.