LONDON, Dec 13 (Reuters) - Loan bankers are meeting the European Central Bank on Friday to discuss proposed leveraged lending guidelines as concerns mount that the rules could have a greater impact in Europe where banks play a more prominent role as investors and hold more exposure on their balance sheets.
The ECB is conducting a consultation process and has asked for comments by January 27, after unveiling draft guidelines in November that mirror existing US rules.
The US introduced leveraged lending guidelines in 2013 to reduce systemic risk and encourage banks to maintain credit standards by clamping down on risky loans that lenders have underwritten but may not be able to sell.
European bankers are concerned that the guidelines will stretch beyond buyout loans for private equity-owned companies and that corporate, investment-grade, commercial real estate, infrastructure and utility loans could also be caught by the new rules.
“It is a much broader remit than originally expected. If they are targeting sponsor business then they have gone a very broad way to get there,” a senior leveraged finance banker said.
Bankers are unclear whether infrastructure loans to rated and regulated companies, such as Thames Water, will fall under the new guidelines. Infrastructure lending was previously a lucrative business and European banks have high levels of exposure.
Many of these infrastructure loans are also for British companies, which may be regulated by the Bank of England after Britain’s vote to leave the European Union and are strategically important for the British government.
“The ECB needs to be clear on what it is catching and banks need to try to work out how to prevent the guidelines from ending good business. The ECB should not stop us from lending to utilities and infrastructure and other deals that make sense, which the British government would want us to do,” the banker said.
Banks are also concerned about how they will organise themselves internally in time, to assess which loans could be affected, and how they will be accounted for and reported on, as the logistical challenge mounts for lenders.
“It will take a lot of resources, time and effort to get everything sorted and make sure we work out exactly what needs to be reported on. We are already dealing with a lot more bureaucracy and this will just add to it,” a second senior banker said.
There are 127 banks in the Single Supervisory Mechanism that is regulated by the ECB. Banks operate different internal models, which could also give a less uniform application of the guidelines than expected, bankers said previously. (Editing by Tessa Walsh and Christopher Mangham)