Key Takeaways
- • US banks have nearly doubled their total return swap (TRS) books to $492bn in roughly two years, according to an analysis by The Banker of Federal Reserve filings.
- • The notional value of swaps reported by US banking groups has nearly doubled from its 2024 level, per The Banker's review of Fed data.
- • The drivers of the surge, and how much exposure is tied to potentially illiquid private credit loans, remain largely undisclosed to investors.
- • The Banker characterises the issue as a growing blind spot in how lenders assess and disclose risk.
Summary
US banks have almost doubled their books of total return swaps, a little-known class of derivatives, to $492bn in just two years, according to an investigation by The Banker. The publication's analysis of Federal Reserve filings shows that the notional value of swaps reported by US banking groups has nearly doubled from its 2024 level.
Total return swaps allow one party to receive the economic return of an underlying asset without owning it outright, making them a tool that can transfer exposure across institutions. The Banker reports that precisely what is driving the surge remains unclear from public disclosures.
A central concern raised by the investigation is how much of the swap exposure is linked to potentially illiquid private credit loans. The Banker says this linkage remains largely hidden from investors, pointing to a growing blind spot in how lenders assess and disclose risk.
The full article is behind a subscription paywall, so further detail on counterparties, specific loan exposures and regulatory response is not available in the source material reviewed.
Total return swaps allow one party to receive the economic return of an underlying asset without owning it outright, making them a tool that can transfer exposure across institutions. The Banker reports that precisely what is driving the surge remains unclear from public disclosures.
A central concern raised by the investigation is how much of the swap exposure is linked to potentially illiquid private credit loans. The Banker says this linkage remains largely hidden from investors, pointing to a growing blind spot in how lenders assess and disclose risk.
The full article is behind a subscription paywall, so further detail on counterparties, specific loan exposures and regulatory response is not available in the source material reviewed.
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