In the last two days of hearings and Presidential pronouncement, the critical question of credit-risk transfers has been universally noted, but largely unaddressed.  Substantive discussion of CRT centers on current, highly-structured CRT instruments to assess how deep the market may be, how much first-loss risk the GSEs or successors must keep, and how much money the Street can make from structuring these complex instruments.  But, does CRT need to encompass instruments as complex as the synthetic CDS one witness espoused?  The President’s instructions to Treasury and HUD open a window to a U.S. covered-bond market which shifts billions of taxpayer credit risk to a deep, liquid pool of institutional investors.

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