EU Eyes Pact With Banks for Financing Companies Hurt by Pandemic

(Bloomberg) --

Officials in Brussels may ask Europe’s financial industry to make a joint pledge to keep credit flowing to companies hurt by the coronavirus pandemic.

Banks and other firms could be asked for a commitment to maintain credit lines to businesses and households and step up borrowing to cover any virus-related cash-flow problems, according to an internal European Commission document seen by Bloomberg. The initiative would complement similar national efforts and would seek to keep up cross-border financial flows in particular.

“The financial sector must be part of the solution, rather than being yet another aggravating factor, as was the case in the past,” according to the document, sent to Valdis Dombrovskis, the commissioner for financial services. “This is a time for the financial sector to think and act in convergence with the interests of society and the real economy, and to avoid short-termism.”

The effort underscores how quickly the pandemic has changed the relationship between banks and policy makers. After tightening regulatory requirements for a decade following the financial crisis, politicians now need lenders to play a part in unprecedented programs aimed at keeping businesses afloat during lockdowns. That’s especially important in Europe, where the economy heavily relies on funding from banks.

The commission can’t force firms to sign the “Code of Responsible Conduct” that it’s considering and would have to persuade them by pointing to “various public sector efforts to support financial markets and the financial sector in this crisis” as well as during earlier ones, according to the document.

A spokesperson for the EU executive declined to comment. A commission official who declined to be identified called it a staff working document that hasn’t been discussed at the political level.

Relief Measures

EU banks have received a range of relief measures in recent weeks, such as permission to dip into financial cushions and the postponement of tougher capital rules. They’ve also received guidance from supervisors on how to apply accounting rules in a way that avoids excessive loan-loss provisions.

The document, signed by senior commission officials, also said the EU’s executive arm is exploring measures for the medium term, such as promoting securitization as well as changes to investor-protection and banking rules to support the economic recovery.

Numerous banks and financial industry associations have already stated their own commitments to keeping credit flowing to virus-hit businesses but so far there hasn’t been a joint policy across Europe.

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