The economic importance of synthetic risk transfer ( SRT ) markets has grown rapidly over the past decade, according to a new report by the Bank for International Settlements ( BIS ).

SRT transactions, compared with securitizations before the global financial crisis of 2008, the report says, “recently appear to be more prudently structured and managed”. However, the BIS, which is a forum for the world’s central banks and helps to manage their foreign exchange reserves, also warns that “risks associated with SRT use merit continued monitoring by supervisors”.

As well, SRT transactions, which involve banks transferring the credit risk of a pool of assets to a counter-party while retaining ownership of the underlying assets, the report finds, have been “particularly vibrant” in the eurozone, North America and the United Kingdom.

The total value of protected assets in these jurisdictions, the BIS estimates, is about €750 billion ( US$885.32 billion ) or 1.1% of total bank assets.

Other jurisdictions – such as Japan, Sweden and South Africa – have seen “limited transaction activity”.

SRT markets, according to the report published by the Basel Committee on Banking Supervision on February 17, have become “an important source of capital relief for corporate credit risk”.

Investors are typically private investment funds, although public sector entities “also play an important role in some jurisdictions”.

Reforms adopted since 2008, the bank finds, “make SRTs simpler and result in more scrutiny” compared with credit risk transfers before the crisis.

Risks associated with SRT use – such as banks’ increased dependence on non-bank financial intermediaries – “are acknowledged and, to some extent, actively managed by market participants”.

However, some jurisdictions and market participants believe that there are “blind spots related to disclosure and SRT financing activities” – hence the need for continued monitoring as SRT markets continue to grow.