Eumedion in favour of adjusting prudential assessment criteria for bank takeovers to address concerns about financial stability
10-02-2012
Eumedion is in strong favour of adding an additional prudentional assessment criterion for bank takeovers to address concerns about the consequences of a bank takeover for the financial stability. This is one of the elements of Eumedion's reaction to the European Commission's consultation paper on acquisitions and holdings in the European financial sector.
The current criteria in the 2007 Directive regarding procedural rules and evaluation criteria for the prudential assessment of acquisitions and increase of holdings in the financial sector include (a) reputation of the proposed acquirer; (b) reputation and experience of those who will direct the business; (c) financial soundness of the proposed acquirer; (d) compliance with any relevant prudential legislation; and (e) suspicion of money laundering and terrorist financing. The possible consequences of an acquisition of a qualifying holding in a certain financial institution on the financial system’s stability are not a explicitly addressed. According to Eumedion "the experiences in the current financial and economic crisis have taught us that failure of a single financial institution can put the overall financial system at risk". Furthermore, Eumedion would welcome a requirement for acquiring banks to ask shareholder approval for major acquisitions, given the fact that major acquisitions (related to the size of the acquiring bank) will probably change the acquiring bank’s risk profile. After shareholder approval, the acquiring bank should obtain regulatory approval of the major acquisition. Eumedion believes that this issue of shareholder approval ought to be addressed in the upcoming reviews of the European Company Law Directives.