November 22, 2018 11:05 am

EU and ECB fight over bad loans

On December 6, a new NPL regulation will be voted on in the Economic Committee of the European Parliament. Currently, the ECB and the EU are still arguing over the rules banks must follow to solve the problem. In October 2017, the ECB presented new NPL guidelines to encourage European banks to reduce their bad loans more quickly. However, these were considered too stringent by European Parliament President Antonio Tajani. In addition, the EU stated that the ECB exceeded its competences since the European Parliament would be responsible to deal with the problem.

In the meantime, the European Parliament is working with the EU Commission and he Economic and Financial Affairs Council on new plans to tackle the NPL problem. The planned regulations, however, are less stringent: for two years, the banks do not need any provisions for NPLs. If the bad loans are unsecured, they must be completely removed in the third year. If the loan is secured by a real estate collateral, banks could have nine years to reduce their bad loans. By comparison, in the US, banks need to get rid of accumulated NPLs within six months. Handelsblatt (Paywall)

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