JPMorgan Chase, Morgan Stanley, and U.S. Bank and others are selling complex debt instruments to private-fund managers as a way to reduce regulatory capital charges on the loans they make, people familiar with the transactions said.
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Big banks cook up new way to unload risk
"In most of these risk transfers, investors pay cash for credit-linked notes or credit derivatives issued by the banks. The notes and derivatives amount to roughly 10% of the loan portfolios being de-risked. Investors collect interest in exchange for shouldering losses if borrowers of up to about 10% of the pooled loans default."
