European Commission scrutinises competition issues in bank loan syndication
Syndicates of banks offering loans to borrowers are subject to scrutiny by the Directorate General Competition of the European Commission. The Commission seems to suspect that certain banks may have infringed the cartel prohibition.
In its 2017 Management Plan, DG Competition stated that it “will possibly engage in a study on potential competition issues of loan syndication”. The Commission state that syndicates of banks offering loans to borrowers exhibit “close cooperation between market participants in opaque or in-transparant settings”.
For syndicated loans, banks work together to provide a borrower individual portions of a large loan. Banks often form syndicates in order to spread the risk inherent to lending activities. Usually, syndicated banks do so by cooperating in negotiations on the terms for their individual portions of the loan.
The Commission will assess potential competition issues of loan syndication focusing primarily on obtaining information on market structure, dynamics between market participants and potential competition issues. This indicates that the Commission considers carrying out a sector inquiry or investigation based on public information. Sector inquiries are the Commission’s preferred tool when it believes that competition in a certain sector is hampered.
The study on loan syndication fits the Commissions larger concern about anticompetitive behaviour in the banking sector, in particular concerning the exchange of commercially sensitive information between banks. On 7 December 2016, the Commission already fined several banks for their exchange of confidential and sensitive information about their EURIBOR positions and strategies through corporate chat-rooms or instant messaging services.
Competition authorities, whether on the national or on the EU-level, could impose high fines if they establish that competition rules have been infringed. It is essential that banks have a compliance programme to prevent such breaches.