Frankfurt (Reuters) – In view of the expected credit defaults as a result of the Corona crisis, the ECB banking supervisory authority is pushing ahead with a specific proposal to relieve the financial institutions.
The move by ECB chief bank supervisor Andrea Enria provides for the reduction of bad loans in the bank balance sheets with the help of government support in Europe, as he explained on Tuesday at an event on European banking regulation. Among other things, this is intended to prevent the institutes from being able to sell their wobbly loans to specialized investors only at low prices. Enria initially presented his idea in October, but was not very concrete at the time.
An increase in non-performing loans would be a big problem for the economy in the midst of the Corona crisis. Because institutions act more hesitantly when granting loans, the more wobbly loans they drag with them on their balance sheets. “It’s about enabling banks in the EU to support viable households, small businesses and businesses,” Enria said.
His proposal envisages the establishment of a European association of asset managers who would take their bad loans from the banks and sell them on to the market. According to Enria, the financing will be supported by European funds. At the same time, the pricing for the transfer of the loans should be regulated at European level. That would also benefit asset managers. “Funding provided or guaranteed by a European body would allow any national asset manager to benefit from the EU’s creditworthiness and enjoy better market access,” said Enria.
In the event that the companies should end up in the red, it could be agreed, according to Enria, to limit or even exclude the mutualisation of credit losses in the EU. Losses would then be distributed to the respective country of origin of the bank according to the national procedures. According to Enria, only banks with a business model that is viable from the supervisory perspective, even after the Corona crisis, should have direct access to the network. For other institutes, access is to be linked to strict conditions such as restructuring requirements.
– .
