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European Central Bank may lower bar for bank mergers

2020-06-11 11:06:27 Business


The ECB recently announced that they may lower its demands for some banks in the European Union to raise capital and pass over bad loans before merging, in a bid to hasten the consolidation in the profit starved sector. This announced by one of the European Central Banks top supervisors on Thursday.
Meanwhile, another senior ECB supervisor doused the flames of a notion brought forward by a number of European politicians, that the Bank should lower capital requirements for banks’ exposure to environmentally sustainable, or green projects.

The vice chair of ECB’s supervisory arm Yves Mersch, said that many of the problems in the way of mergers among euro zone banks, were outside of the European Central Banks remit, and were held back by differences in national laws and practices. Mersch continued to say that ECB as the euro zone’s primary bank supervisor could do more to assist in facilitating mergers, starting with reviewing the banks requirements that some banks raise capital and offload non-performing loans before a merger takes place. "I would not exclude to revisit our assessment criteria, also about the treatment of NPLs in M&A, appropriately reflect the synergies reaped by mergers" and avoid double-counting - while not losing sight of the risks associated with mergers between complex organizations. Mersch, who joined the ECB's Single Supervisory Mechanism (SSM) this year, said at a conference in Paris.

In 2016, the European Central Bank demanded that Italy’s Banco Poplare raise over $1 billion USD of capital as part of the agreement to allow its merger with Banca Popolare di Milano, while asking them to offload almost $10 billion USD of non-performing loans after the merger was successful.

Chair of the European Central Bank Andrea Enria said at a separate event "The treatment of exposures to certain assets should be based on their risks, any capital relief for green assets must be based on clear evidence that they are less risky than non-green assets." This came after the ECB was questioned relating to environmentally friendly and green projects. The ECB said that they would not be issuing capital for the aforementioned projects just because they were environmentally stable. He continued to say that the ECB is working with other regulators on how to best approach climate related risks for banks, which range from natural disasters, to an economic shift away from polluting sectors.
Akemi Akihiro - South Eastern Trading

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