(Bloomberg) -- The European Investment Bank is dangling synthetic risk transfers, a type of securitization winning over Wall Street, to draw banks into more green lending.

The multilateral lender wants to enlist eight commercial banks in a program that will let them shed some of the risks from €11.5 billion euros ($12.5 billion) of loans. It’s offered to put up €800 million through mezzanine tranches referencing those assets, in order to free up loan capacity at the banks.

The banks will then commit twice that amount, €1.6 billion, to green financing, according to Nicolas Mardam-Bey, a Luxembourg-based loan officer at the EIB. 

The EIB is in advanced discussions with a German bank, said Mardam-Bey, and lenders elsewhere in Europe have also shown interest. 

“This approach allows for the mobilization of additional resources to finance projects that might otherwise struggle to secure funding,” Mardam-Bey in an emailed reply to questions.

Banks use synthetic risk transfers to pass on the risk of loan losses through a derivative or credit-linked note, often to private creditors and hedge funds who are enticed by the high yields on offer.

The EIB, though, is offering to buy the mezzanine debt at lower yields than private investors would demand, using its own counter-guarantee from the European Commission.

Read: Santander’s Consumer Unit Has Big Plans for Synthetic Risk ABS

Here’s how the maths works: eight banks with about €11.5 billion of loans slice them into tranches of varying risk. They then sell the mezzanine tranches to the EIB representing second-loss portions covering typically 6% to 7% of the loans, or about €100 million for each €1.5 billion portfolio.

This in turn allows banks to reduce the amount of regulatory capital they need to set aside on the loans, freeing up their balance sheets to make more profitable, or in this case, greener loans. 

These will include renewable energy and related infrastructure, energy efficiency, green transportation, environmental and resource sustainability, and sustainable agriculture, according to Mardam-Bey.

“By utilizing securitization, a financial tool that separates risk from performing assets to catalyze new lending, the EIB can effectively transfer benefits to eligible green projects,” he said.

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