ECB’s Ambitious Plan to Curb Risky Lending

 


Supervisors at the European Central Bank were sure interest rates would eventually rise, ending a decade of ultra-loose monetary policy that had encouraged risk-taking. 

Yet banks were largely ignoring their guidance to curb lending to highly indebted companies, challenging the institution’s authority.

Officials have already more than halved their initial estimate of the extra provisions they want banks to make. 

Just nine months into her term, Buch — a former Bundesbanker known for being tough on banks — now finds herself in the uncomfortable position to decide how much more the watchdog will walk back its demands.

Then, in September 2023, the crackdown intensified with work starting on a thematic review across 12 banks operating in the European Union that had large leveraged finance exposures, or where leveraged finance was a big part of the overall business. 

The banks under scrutiny included heavyweights Banco Santander, Deutsche Bank, BNP Paribas and Societe Generale, as well as EU offshoots of international megabanks HSBC, JPMorgan Chase and Bank of America. 

The set was completed by smaller European banks Nordea Bank and Rabobank, as well as MeDirect Bank, a niche lender in Malta.

Banks - led by the French, Italians and Germans - have been lobbying hard, warning that draconian requirements will hurt lending to European businesses

The matter will ultimately be decided by Buch

Bloomberg 13 September 2024

https://www.bloomberg.com/news/articles/2024-09-13/how-the-ecb-s-plan-to-curb-risky-leveraged-lending-veered-off-course

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