ECB is harder against banking engagements in private markets
Regulatory authorities are reacting worldwide alarmed to rapid growth in the private credit area. Investors pump money in funds that are not subject to the same strict supervision as banks.
Traditional banks that are committed to companies that are owned by private equity or take out loans from private-debst funds, try to participate in this growth by making different forms of debt available to such funds and managers.
Direct lovers initially took over the financing of companies that dropped the banks after the 2008 financial crisis due to strict regulations. However, the industry increasingly competes with established providers in other transactions and argues that it can offer faster DUE diligence tests and better service.
Warning goes out
As announced from informed circles, the supervisory authority sends managers of certain banks in which they are warned of practices in the financing of private funds.
Another indication of the determination of the ECB is that it is planning to carry out investigations on site for several large European banks, according to the people. Employees of the supervisory authority recently paid one of the first visits of this kind, it said.
Spokesman for the ECB and the Société Générale rejected a statement.
Direct lovers initially took over the financing of companies that dropped the banks after the 2008 financial crisis due to strict regulations.
The measures of the ECB are a tightening of a review that started last year. At that time, Bloomberg reported that the supervisory authority had the most important banks, including large French and German credit institutions, to ask details of their shops with private credit companies and their loans to funds working in this area. The review showed that the banks are unable to determine the type and scope of their entire commitment in detail at private credit funds.
Strict regulation could indirectly dampen growth in Europe
While European banks are generally less involved in private equity and are involved than their US competitors, some of them have « high engagements, and the contribution of this segment to their profits is considerable, » said the ECB in November.
Private credit has increased significantly in Europe, but the strict regulation could indirectly dampen this growth in Europe, say bankers.
Letters to banks are an important instrument for the ECB to illustrate how the industry in their opinion should tackle certain topics. The supervisory authority can continue to escalate the measures if it comes to the conclusion that the banks ignore the content of their writing.
