The voice of Galicia
C. Goalkeeper
Writing / The Voice
16/12/2020 18:40 h
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There will not be european bad bank. The European Comission has today renounced this possibility that many had invoked in order to digest the flood of bad loans that the pandemic will leave behind.
Although the president of the Supervisory Board of the Banco Central European (ECB), Andrea Enria, had suggested the need to create this platform where to concentrate all the risk assets of the banks linked to this crisis, the Italian was lowering the ambition of the proposal in November until it was reduced to the substitute that he presented today the Commission: a European network of national bad banks They could exchange information with each other about the volume of toxic assets they have in their portfolios. For what? To coordinate between them possible transfers, sales or strategies to give them an exit.
The proposal is very limited, in substance and in form. It does not articulate a new channel to remove non-performing loans from bank balances, those that could hinder credit to solvent households and companies that may need it in the coming months. It limits itself to suggesting to member states that they set up asset management companies, such as the Spanish Sareb. Whether they are public or private. They recommend it because its creation is “voluntary.”
What’s behind Brussels’ reluctance to create a genuine European bad bank? The Community Executive ensures that “The cost of setting up a European asset management agency can be very high” due to two factors: due to the different volumes of NPLs that countries accumulate and due to the regulatory chaos in national restructuring and insolvency frameworks, which makes it difficult to transfer these loans. NPL to a centralized bank.
The data corroborate the fears of the Commission and give wings to countries that do not want to share risks, neither sovereign nor banking. There are countries like Greece where bad loans – those that accumulate 90-day arrears or have a very high risk of non-return due to the financial problems of their beneficiary – are close to 31%.
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The voice of Galicia
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In Cyprus they are 14.5% and in Italy 6.3%. Spanish banks are at 2.9%, only one tenth above the EU average, although in a situation of less strength than the German entities (1.2%).
Detoxify the balances
What Brussels has done this time is to anticipate solvency problems to avoid greater evils. “History shows us that it is better to deal with bad loans early and decisively,” said the Vice-President of the European Commission, Valdis Dombrovskis. He was referring to the last crisis, when the indigestion of this type of loans that were never repaid cracked the banking map of the eurozone. “Today we are launching a series of measures that, while guaranteeing the protection of loans, can help prevent an increase in non-performing loans similar to that after the last financial crisis,” recalled the Commissioner for Services and Financial Stability. Mairead McGuinness.
Brussels does not want bad loans to intoxicate other bank assets, as has happened in the past. For this reason, it proposes to speed up the development of secondary markets for distressed assets, in such a way that banks can gradually dispose of these credits while strengthening the protection of the debtor. In order to do this quickly and effectively, the Community authorities believe that it will be necessary to set up an electronic central laboratory to which to channel all the data on bad loans stored by European banks. It would be like a price panel in the market. Interested agents (investors, asset management agencies, credit services and credit sellers) would have access to that platform to exchange information and negotiate.
Another of the proposals on which he has emphasized is to shore up the insolvency frameworks in the EU and the laws on debt recovery to give more legal certainty and accelerate the recovery of money. This is a pending task in Spain. Experts believe that its insolvency framework is very poor, pushing most companies into liquidation, hurting economic activity and adding losses to banks’ balance sheets.
Urgency
In addition to the creation of the network of national asset management agencies, the central economic laboratory and the harmonization of insolvency frameworks, Brussels also urges to make use of the flexibility offered by the umbrella of temporary public aid, to continue pumping money as long as the economy needs it. You have to do it quickly and well because it predicts an increase in bad loans in the coming months. If the risks of defaults and losses materialize, “this would prevent banks from continuing to extend loans to homes and businesses, leading to a delay in economic recovery, creating tangible and prolonged effects on the real economy,” he warns.
Public aid to banks
Given the extraordinary circumstances that banks and the economy as a whole are going through due to the pandemic, Brussels was willing to relax the conditions to prevent entities that arrived healthy and that have managed their balance sheets well from ending up in resolution processes at the hands of the Single Resolution Board (JUR). How? Accepting temporary public aid to banks at risk of bankruptcy if they meet “strict conditions.” Just as companies can take advantage of the temporary public aid frameworks, banks will also have this possibility to cope with a crisis that has not been induced by poor management of the balance sheets or public accounts of the States but has external causes. “I am not proposing bank bailouts but precautionary aid and support under certain circumstances”, qualified Dombrovskis, who believes that “temporary and targeted” public aid may have a lower cost than letting bank balance sheets deteriorate until it is no longer possible to keep entities afloat.
