The capital add-on would be removed for those banks that have remedied the issues, according to Andrea Enria, chair of the ECB’s Supervisory Board, in an interview she gave in Frankfurt. Others haven’t and will hold onto it for a little while longer.
Enria omitted mentioning any of the relevant banks. According to Bloomberg, the ECB increased capital demands for lenders such as BNP Paribas SA and Deutsche Bank AG because it said they disregarded its warnings to reduce risk in leveraged credit.
In an effort to compete with US companies in a market that may provide large fees and help them gain additional business, European lenders have recently pushed into financing for heavily indebted borrowers, which were frequently the target of private equity takeovers. The ECB expressed concerns as early as 2017, and the problem came to symbolise Enria’s campaign to encourage lenders to better manage their credit risks.
In a thorough interview, Enria also discussed strategies for reducing the burden of banks’ yearly risk assessments and getting away from greater capital requirements as a primary means of pressuring lenders to address issues. However, in other circumstances, such as when it comes to resolving risks from leveraged finance, he continued, capital add-ons will continue to be the optimal course of action.
The ECB is probably going to apply leveraged finance fees to more businesses for the upcoming year, according to a prior Bloomberg story. Enria declared that the ECB would keep up its pressure campaign.
Some of those who did not receive the capital add-on but have not resolved the issues we identified last year would likely receive a new capital add-on, he said.
Because the ECB has not yet finished its annual examination of the risks banks face, he would not indicate how many banks would be subject to such rules.