Third-tier banks in almost every major world economy are trading credit derivatives, and the list is growing. Founder of consultancy Reoch Credit and former senior JPMorgan staffer Robert Reoch said he is fielding an increasing number of inquiries globally from smaller, less sophisticated firms. These banks are motivated by the Basel II incentive to actively manage credit risk, as well as the benefits of credit trading and structuring. Reoch also noted institutions are reaching the end of lengthy internal approval process allowing them to deal in synthetic credit. "You don't have to look very far to see many banks are adding resources to do this," Reoch said.
Reoch said these banks want advice on how to repackage complex credit structures to sell into local markets, as well as originate risk from their own markets and sell it on. "They would be able to distribute risk into their own footprints [domestic markets] that foreign banks can't," he said, adding, "There is bags of scope." In addition, Reoch said there is increasing interest from banks to sell structured credit into retail. Reoch Credit was formerly Reoch Consulting.
