On 12 January 2021, the European Central Bank (ECB) published a final guide outlining its supervisory approach to consolidation in the banking sector, following a public consultation which ended on 1 October 2020. The ECB has also published a feedback statement setting out its views on respondents’ comments on the consultation.

With the final guide, ECB banking supervision intends to clarify, within the current regulatory framework, the principles underpinning the prudential supervisory approach it follows when determining whether the arrangements implemented by a credit institution resulting from a consolidation ensure the sound management and coverage of its risks. The ECB believes that this will increase its transparency via-a-via the market by helping stakeholders understand the supervisory expectations aimed at ensuring the safety and soundness of credit institutions resulting from a business combination, particularly when it comes to mergers and acquisitions of supervised entities.

The ECB states that the final guide should enhance the transparency and predictability of supervisory actions and help credit institutions design prudentially sustainable projects. The final guide covers the:

  • Overall approach to the supervisory assessment of consolidation projects.
  • Supervisory expectations regarding consolidation projects.
  • Supervisory approach to key prudential aspects of the consolidation transaction.
  • Ongoing supervision of the newly combined entity.
  • Application of the framework to consolidation transactions involving less significant institutions.