October 29, 2020 5:09 pm

“European asset management company an effective solution”

Andrea Enria speaks in an opinion piece about how European banks deal with the increase of non-performing loans as a result of the COVID-19 pandemic. The Chair of the Supervisory Board of the ECB…


…about the increase of NPLs in the euro zone: “According to ECB estimates, in a severe but plausible scenario non-performing loans (NPLs) at euro area banks could reach €1.4 trillion, well above the levels of the financial and sovereign debt crisis. While we hope for the best, we must be ready for the worst.”


…about the lessons of the last financial crisis: “The European Banking Authority and the ECB have developed practical guidance that requires banks to manage NPLs more actively, and legislation has been introduced to ensure progressive write-downs of impaired assets. However, the experience of the past shows that whenever asset management companies were used, the clean-up of bank balance sheets was much quicker and more effective in restoring banks’ ability to lend.”


…about the possible introduction of a European bad bank: “I am convinced that a European asset management company would be an effective solution. Alternatively, a European network of national asset management companies, if appropriately designed, could equally support a symmetric recovery of our economies.”


about the role of the ECB in building a bad bank: “If the funding is provided or guaranteed by a European body, each national asset management company, regardless of its location, would benefit from the EU’s credit standing and be able to access markets on better terms. […] The low cost of funding and a carefully designed and verified common valuation methodology would ensure the right balance between the losses imposed on banks upon transfer of the NPLs and the medium-term profitability of the asset relief scheme.”


…about concerns in the EU: “In the unlikely case that such a scheme ends up making losses, it is possible to design a framework that limits or even excludes any mutualisation of credit losses across the European Union: losses could be allocated in accordance with the nationality of the originating banks and the corresponding national scheme.”


A short version of the opinion piece was published in the Financial Times on 27 October 2020.

This post was written by Jens Secker

(Image rights: istockphoto.com/AlxeyPnferov )

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