Banks Lobbying ECB on LevFin Risk: One To Watch

BBG is carrying a story indicating banks pushing back against the ECB’s recent examination of leveraged finance risks, citing an official from the European Banking Federation (the trade body). This appears a case of plenty of noise with little real information and we see this as having little effect on spreads, outwith a meaningfully more belligerent attitude from the ECB requiring greater provisioning at banks. This could be a spread positive outcome.

• Firstly, such tensions are hardly new, and it remains a longstanding point of contention that the ECB takes a more prescriptive and risk-averse approach than US regulators do, at least in the opinion of some bank managements. That said, US regulators have had their fair share of bank failures, too.
• Secondly, a range of global regulators have taken aim at the leveraged finance market and, for example, the strength of Credit Suisse in this area was certainly a topic of discussion during its liquidity issues prior to the UBS rescue. With spreads at multi-month tights and increasing levels of loan restructures and extensions, there are valid arguments to examine this area.
• Finally, this is a typical period when bankers tend to lobby regulators, between results seasons and away from the frantic year-end periods. Hence stories around FRTB delays, IRB model approvals and now this.