The European Central Bank (ECB) has published for consultation draft guidance to banks on leveraged transactions. The draft guidance, when finalised, will apply to all significant credit institutions supervised by the ECB under Article 6(4) of the Regulation establishing the Single Supervisory Mechanism (hereafter referred to as ‘banks’).
The draft guidance recommends that banks put in place a unique and overarching definition of leveraged transactions and clearly define their strategy and appetite for underwriting and syndicating them. Banks should also make sure, through a solid credit approval process and regular monitoring of leveraged portfolios, that realised transactions adhere to their risk appetite standards. Finally, banks’ senior management is expected to receive regular, comprehensive reports about leveraged transactions.
The guidance will be non-binding. However, the ECB will expect all banks to translate the guidance into their internal policies proportionately to the size and risk profile of the banks’ leveraged transactions, in relation to its assets, earnings and capital.
The deadline for comments on the consultation is 27 January 2017.
View ECB launches public consultation on draft guidance on leveraged transactions, 23 November 2016