ECB Conducts Survey to Probe SRT ‘Blind Spots’ and Leverage

Pedro Machado, the European Central Bank’s, or ECB’s, representative to the supervisory board, announced a formal inquiry into the financing of significant risk transfer, or SRT, transactions on March 24, signaling a shift toward more granular supervision.Speaking at the LBBW Fixed Income Forum, Machado confirmed that the regulator is now auditing “the provision of funding by significant banks to investors in securitizations originated by other banks.” The move follows reports from the Basel Committee on Banking Supervision and the Bank for International Settlements earlier this year identifying “blind spots” in disclosure and financing – a term Machado used verbatim to justify the ECB’s more forensic approach to market “circularity.”

Machado revealed that the European Union has established itself as the largest market for SRTs, accounting for 50% of the global outstanding amount, compared with just 20% in the United States. Among the EU’s significant institutions, SRT issuance grew by approximately 45% between 2024 and 2025 alone.

However, Machado cited internal ECB research suggesting that banks are strategically selecting the most capital-intensive exposures for transfer. The research also found evidence of “weaker post-transfer monitoring,” with banks updating internal borrower risk assessments less frequently once the credit risk had been synthetically moved.

The new ECB survey is designed to detect “interconnectedness” between originators and protection providers. Although Machado admitted that system-wide “round-tripping” risks appear contained, he noted that debt levels for some investors tend to rise immediately before transactions occur.

Machado issued a stark warning that the market’s long-term sustainability is at risk if growth relies on “increased leverage or on the repackaging of securitisation notes.”

Although the ECB’s survey aims to eliminate circularity within the eurozone, the data indicates that the ECB is addressing a susceptibility partially stemming from its own conservative stance regarding local participants. According to the ECB’s Securities Holdings Statistics, 75% of credit-linked note exposure is currently held by non-EU investors. By simultaneously investigating the leverage used by foreign funds and maintaining barriers against local Solvency II-regulated insurers, the ECB risks its probe leading to a retreat by international funds without certainty that a domestic investor base exists that is authorized – or willing – to step into the breach.

Seeking to offset this increased scrutiny, Machado confirmed that the ECB has begun receiving notifications under its new SRT fast-track process, which promises accelerated approvals for “standardized and simplified” structures.

Overall, market sources suggest the shift represents a necessary pivot for the regulator following pressure from Brussels to remain within its supervisory mandate rather than influencing legislative outcomes. Although the fast-track is seen as an acknowledgment of this boundary, investors expect the ECB to compensate by applying much more rigorous scrutiny to the “repackaging” of notes and the underlying leverage of the investor base.