In the years since the financial crash, it’s not often you’ve seen regulators appear to take a step back in the face of pressure from banks.
The European Central Bank (ECB), however, will delay a report on high-risk loans held on banks’ balance sheets across the Continent amid a raft of complaints from lenders.
The report on leveraged lending was expected to be published this month, but the ECB won’t make it public until the autumn, Bloomberg News reported. The move comes amid a raft of pushback over how the regulator carried out its investigation and can be seen as a tacit admission that at least some of those complaints may have merit.
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Among the issues reported to have concerned lenders: external consultants or ECB staff who don’t cover the banks that closely carried out the review. That led to a perception that those people may not have had a strong grasp of how some banks managed their leveraged loans business. Several firms were critical of the review for classifying some loans as nearing default or in default even though the companies in question continue to service the debt, Bloomberg added.
The review appears to a be a rare embarrassment for the ECB, which has broadly seen grumblings from the lenders it watches over but little more than that. Indeed, such was the pushback on this particular investigation that that in itself quickly became a red flag in itself.
The furore goes to show that while most people are focused on what the ECB will do on interest rates beyond this week when it is expected to hold steady, there are very real issues on the Frankfurt-based regulator’s doorstep.
Leveraged lending is very much a big deal, and could become a big problem if things go wrong. It will be interesting to see what credibility this report has within the industry when it is ultimately published.
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