Clifford Chance

US Developments in the CRT Market: Growing Opportunities

11 May 2022

This is a reprint of an article originally published on 16 March 2022 as part of our publication "Structured Debt in a New World", accessible here.

The credit-risk transfer (“CRT”) market in the US continues to expand, with new banks and new asset classes. Several of the largest US banks have been active in this market and have recently increased sales of risk-transfer securities tied to mortgages, corporate loans and auto loans. Most recently, the issuance of CRT notes linked to mortgage warehouse lines by two regional banks – Texas Capital and Western Alliance – has attracted significant attention and speculation on whether other regional banks will follow suit.1 This continued development and growth of the market has market participants asking: what does the future of the CRT market look like? 

The answer to this question and the future development and growth of the market depends on two factors: first, recognition of CRT for regulatory capital (“reg cap”) purposes in the US, and second, market familiarity and comfort with the different structures that are available. This article describes the following considerations which may affect the regulatory recognition of CRT and the expansion of the CRT market: first, the basic regulatory issues, second, the structuring considerations and third, and the legal issues that are raised. While several CRT transaction structures are possible, this article focuses on CRT notes.

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