European banks’ increasing use of synthetic risk transfers has a bigger impact on the dividends they pay shareholders than the loans they grant to companies, according to researchers at the European Central Bank. When issuance of such SRTs goes up by 1%, dividend payouts rise by 0.07% while corporate loans grow by 0.02%, the ECB staffers wrote in a blog post on Wednesday. The magnitude of the latter is “too small to have a meaningful or substantial economic impact,” they wrote.

The findings suggest that financial engineering through risk transfers may be prioritizing shareholder returns over real economy lending. This dynamic raises questions about the effectiveness of current banking incentives in supporting business investment. The ECB analysis highlights a growing divergence between financial sector activity and traditional credit intermediation.

Policymakers may need to reassess how regulatory frameworks influence bank behavior regarding dividends versus lending.