According to sources familiar with the matter, UBS (UBS.US) is conducting preliminary discussions with investors regarding a significant risk transfer (SRT) scheme, aiming to alleviate strict capital regulatory pressure through structured instruments linked to corporate loan portfolios.

The sources indicated that the bank is considering linking the structured risk transfer (SRT) to a $1 billion loan portfolio, with the SRT scale potentially reaching around 12.5% of the reference portfolio. As the transaction is still in its early stages, specific terms and scale remain subject to change, and UBS declined to comment on the matter.

Additionally, it was revealed that UBS is also advancing another SRT transaction linked to a 2 billion Swiss franc (approximately $2.5 billion) loan portfolio, planning to issue related notes through the J-Elvetia platform. It's worth noting that J-Elvetia was one of the platforms used by Credit Suisse to issue SRT notes before UBS's acquisition of Credit Suisse.

The SRT mechanism allows banks to transfer loan default risks to pension funds, sovereign wealth funds, and hedge funds by issuing credit-linked notes, thereby releasing capital required to meet regulatory requirements.

This SRT plan emerges against the backdrop of Swiss government-driven banking reforms, which could potentially increase UBS's existing capital requirements by up to $26 billion, aimed at preventing risk events similar to the Credit Suisse crisis from recurring.

Research indicates that the global SRT market is expected to grow at an average annual rate of 11% over the next two years, with European banks being the main driving force, including institutions such as Santander, Banco BPM, and Deutsche Pfandbriefbank, all of which are discussing or advancing related transactions.