The European Central Bank (ECB) has published guidance on leveraged transactions.

The guidance enters into force six months after its publication and applies to all significant credit institutions supervised by the ECB under Article 6(4) of Regulation No. 1024/2013 (the Single Supervisory Mechanism Regulation).

The guidance covers the following topics:

  • definition of leveraged transactions;
  • risk appetite and governance;
  • syndication activities;
  • policies and procedures for new deal approval, and monitoring and managing of longer term leveraged transaction holdings;
  • secondary market activities on leveraged transactions; and
  • reporting requirements and management information systems.

The guidance does not aim to prevent leveraged borrowers from accessing financing solutions, nor does it stipulate non-pass thresholds regarding the origination of transactions. Instead, the supervisory expectations seek to ensure sound and consistent risk management practices and to harmonise the definition of leveraged transactions.

While significant credit institutions that are directly supervised by the ECB should make this guidance an integral part of their internal policies, the implementation of each aspect of the guidance is subject to the principle of proportionality. Accordingly, the internal implementation of supervisory expectations expressed in the guidance should be consistent with the size and risk profile of institutions’ leveraged transactions relative to their assets, earnings and capital.

View ECB publishes guidance to banks on leveraged transactions, 16 May 2017