The Guide is intended to provide fresh clarity on the ECB’s approach to assessing proposed M&A transactions and enhance the transparency and predictability of supervisory actions.
Under the Guide, the ECB will:
..Not automatically penalise proposed M&A transactions by applying higher capital requirements; the starting point for capital will be the weighted average of the two banks’ Pillar 2 capital requirements and Pillar 2 guidance prior to the consolidation transaction
..Generally permit the use of bad will (i.e., the accounting gain generated by the acquisition of assets at a price lower than their fair value aka negative goodwill) to meet regulatory capital requirements
..Accept the temporary use of existing internal models to determine regulatory capital requirements, subject to credible model mapping and rollout plans to address the specific internal model issues created through the merger.
Please see full Alert below for more information.