Publication date: 21 February 2017
The EBF fully supports the Commission’s aim to develop the Capital Markets Union in order to diversify sources of funding for the European economy. Considering that the European economy is currently reliant in approximately 75% on banks’ lending, it is crucial to ensure that the flow of banks’ lending to the economy is not hampered and that the cost of the credit is not increased by unintended consequences stemming from the legislative proposal on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures and amending Directive 2012/30/EU (the ‘proposal’).
Some of the provisions in the current proposal may, however, have unintended effects. In particular, if the economic interest of secured creditors is affected, the cost of the future loans will increase. To put it differently, if the recovery ratios for banks decrease, the loss given default calculations of banks will have to be adjusted accordingly. This will put further pressure on the regulatory capital ratios of EU banks and will result in follow-on effects for new business.
Moreover, the decrease of recovery ratio for banks will aggravate the problem of high level of non-performing loans in a number of European jurisdictions, which the legislative proposal should be instead addressing.
EBF’s main concerns relate to the following issues:
I. Stay of individual enforcement actions.
II. Suspension of ipso facto and early termination clauses.
III. Cross-Class Cram-Down.