CRD VI: What Does It Mean For U.S. Banks Lending Into Europe?

The sixth amendment to the European Union’s Capital Requirements Directive (Directive EU 2024/1619 or “CRD VI”) introduces a significant new hurdle for US banks lending into Europe. This article focuses on the impact of CRD VI on those US banks with a European nonretail borrower constituency that do not have a physical presence in Europe either in the form of a branch or a separately incorporated subsidiary. We also suggest some mitigating strategies banks may use to carry on doing cross-border business while remaining compliant with European requirements.

What is changing?

• As of January 11, 2027, non-EU banks may only provide “core banking services” from either a local European branch or subsidiary or under an exemption set out in CRD VI (see below).
• “Core banking services” include, among other things, deposit taking, lending, and issuing guarantees and commitments.
• Market consensus is that, while CRD VI does not define “lending,” the term should be read widely to cover all wholesale lending, including syndicated lending and trade finance.
• The activity of providing guarantees and commitments caught by CRD VI is likely to include letters of credit, trade finance facilities, and performance bonds issued in favor of EU beneficiaries.
• In order to provide any core banking services as of January 11, 2027, US banks will be required to either: (a) establish a local branch—note that a branch may only operate in the country in which it is licensed and may not passport its services into other European territories; or (b) establish a full-blown subsidiary, which will benefit from a pan-European services passport.

How can US banks continue to lend into Europe without setting up a European branch/subsidiary?

The answer to this question lies in the scope of CRD VI, and in the (admittedly limited) exemptions set out in the legislation. These provide the following flexibility:

• CRD VI only applies to banks: The requirement to provide core banking services through a branch or subsidiary applies only to banks or to entities that would be banks were they established in a European jurisdiction. Lending by a nonbank entity, such as a special purpose vehicle or credit fund, would not be subject to CRD VI. So it is open to a US institution to set up a nonbank lending vehicle in a jurisdiction of its choice through which to lend to European borrowers, and so fall outside the jurisdiction of CRD VI.
• Inter-bank business is exempt from CRD VI’s restrictions: CRD VI provides a number of exemptions from the requirement to establish a European presence, one of which is when the core banking service is provided to another credit institution (bank). This may mean that fronting arrangements whereby an appropriately licensed European bank effects the loan to a European borrower funded through a back-to-back inter-bank relationship that falls outside CRD VI is exempt from its requirements. US banks participating in the back end of such exempt arrangements should not be subject to CRD VI requirements.
• Services provided through reverse solicitation are exempt, but use caution: CRD VI exempts core banking services provided as a result of a client or counterparty’s “own exclusive initiative,” that is, as a result of reverse solicitation. As is always the case, deploying reverse solicitation as an exemption from regulatory obligations requires significant caution, not least because of the strict interpretation placed upon its use by many European regulators. However, while a scenario-by-scenario analysis is always advisable, it is possible to conceive of examples of effective reverse solicitation such as: (a) lending to an international conglomerate when the loan is negotiated, agreed, and executed outside Europe, with any European aspects of that conglomerate included as borrowers without their active participation in that process; and (b) borrowers can, of course, always approach US banks and seek loans on their own exclusive initiative. Caution will be required around subsequent offerings the bank may look at, but again, this will be a matter of a case-by-case analysis.

What happens next?

While CRD VI comes into force in January of next year, a grandfathering provision in the legislation preserves clients’ “acquired rights” in existing contracts entered into before July 11, 2026. Material variations and changes after this date will not be grandfathered, so banks should lock in as much as possible by this date. In addition, in order to facilitate the transfer of the lending arrangement to one of the alternative options compliant with CRD VI described above, banks should ensure that the shift can occur when required and without borrower consent when necessary.