Increased costs
Increased costs

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Increased costs
  • Costs of funding
  • Increased costs clause
  • Excluding costs from the increased costs clause
  • What is meant by increased costs ‘carve-outs’?
  • Basel II
  • Basel III/CRD IV/CRD V
  • Dodd-Frank
  • Bank Levy
  • Brexit
  • More...

This Practice Note considers the costs that a lender operating in the interbank market will incur when providing funding to a borrower and the steps that it will take within the facility documentation to ensure that any increase in these costs will ultimately be met by the borrower. It considers those particular costs that a lender will seek to cover through any increased costs clause, as well as the protections that a borrower will seek to negotiate to protect their position.

Costs of funding

There are a number of costs involved in funding a loan and lenders will normally factor these in when pricing the facility. Different costs tend to be covered by different components of the pricing. See Cost of lending.

Any borrowing a lender makes in the interbank market to fund the loan will normally be covered by the LIBOR element of interest (see Practice Note: Interest—funding rates and margin), or other benchmark (see Practice Note: Interest provisions in risk-free rate based loan agreements). In a fixed-rate loan, the lender will try to ensure the interest rate is high enough so that the cost of its own borrowing will be covered even if that cost increases.

Where mandatory costs are included as a separate element of the interest charge, these will cover certain costs to the lender of being regulated. These are:

  1. the Financial Conduct Authority

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