Banks may not want your cash

With the Capital Requirements Directive IV (CRD IV) now fully implemented into Dutch law, the consequences of the capital requirements set by the Basel III accord are becoming more and more clear. The Basell III accord, which dates back to 2010, requires banks internationally to meet increased capital requirements gradually towards 2019. The reason for Basel III is primarily found in the ineffective functioning of the Basel II accord rules during the credit crunch. In Europe, the Basel III requirements have been implemented in CRD IV and the corresponding Capital Requirement Regulation (CRR) which became effective on 1 January 2014. Due to slightly delayed implementation in the Netherlands, CRD IV has been transposed into Dutch law as per 1 August 2014.

Without going into detail (CRD IV and CRR alone already cover over 400 pages) CRD IV/CRR require banks to hold more capital for their risk-weighted assets and this capital shall generally be of higher quality. In addition, new liquidity and leverage rules will apply to banks, amongst others in order to secure that banks can meet their short and medium term commitments. As a result, for various assets on bank balance sheets more capital of a high quality and liquid nature has to be held by the banks. For example, short and medium term credit lines to clients shall be backed by sufficient liquid assets in order to meet assumed client demands. These increased requirements as well as the eroded bank balance sheets due to the credit crunch and following crisis, are forcing banks to reconsider their balance sheets and their willingness to include balance sheets items including short and long term financing to corporates.

As a result, the continuing process of decreasing willingness to provide corporate lending together with higher lending rates charged by the banks to offset their increased costs, will not stop. Banks are preparing themselves to meet the new requirements and this has an impact on corporate lending.

It is for the above reason that the focus will slowly shift towards alternative financing. Examples include crowdfunding, credit unions, private equity funding, financing by (hedge) funds, stock listings (whether or not through alternative markets), bond issues, leasing and factoring. These alternatives will become more and more important and that regular bank financing will play a less prominent role than it has done until now.

Each of the above alternative financing means has its own financial and legal peculiarities, relating to the amount that can be funded, the form of funding (equity/debt) or otherwise. Apart from tailoring the financial aspects to the borrower, it is also of importance to be aware and advised of the legal (im)possibilities of the different forms of funding.

For more information reach out to: Venrooy, Loet , Partner | +31206056107 | l.venrooy@houthoff.comSiemers, Bastiaan , Counsel | +31206056976 | b.siemers@houthoff.com
This article is brought to you by Houthoff Buruma – a member of the EACCNY.