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Minimum loss coverage for non-performing loans

20-05-2019

The recessions resulting from the financial crisis that broke out at the end of the last decade have caused economic difficulties for more and more EU companies and citizens in recent years, leaving them unable to repay their loans. As a result many EU banks have accumulated high volumes of non-performing loans (NPLs) on their balance-sheets. Although it has almost halved since December 2014, the ratio between NPLs and total loans extended by EU banks (the NPL ratio) remains historically high when ...

The recessions resulting from the financial crisis that broke out at the end of the last decade have caused economic difficulties for more and more EU companies and citizens in recent years, leaving them unable to repay their loans. As a result many EU banks have accumulated high volumes of non-performing loans (NPLs) on their balance-sheets. Although it has almost halved since December 2014, the ratio between NPLs and total loans extended by EU banks (the NPL ratio) remains historically high when measured against the ratios of other advanced economies. NPLs represent a risk to banks' balance sheets inasmuch as future losses they might generate are not sufficiently covered by appropriate reserves. To tackle this issue, in March 2018 the Commission adopted a comprehensive package of measures, including a proposal for a regulation amending the Capital Requirements Regulation (CRR) to introduce common minimum loss coverage levels (a 'statutory backstop') for newly originated loans that become non-performing. Following agreement on a text with the Council in trilogue, Parliament adopted the proposal in plenary on 14 March 2019. The final act was signed on 17 April 2019 and published in the Official Journal on 25 April 2019, coming into force the following day. Second edition. The 'EU Legislation in Progress' briefings are updated at key stages throughout the legislative procedure.

Credit servicers, credit purchasers and the recovery of collateral: Fostering secondary markets for non-performing loans (NPLs) and easing collateral recovery

12-02-2019

Due to the recessions brought about by the financial crisis from the end of the past decade, more and more EU companies and citizens have faced economic difficulties in recent years and have been unable to repay their loans. As a consequence, many EU banks have accumulated high volumes of non-performing loans (NPLs) in their balance-sheets. Although almost halved in comparison to December 2014, the ratio between NPLs and the total loans extended by EU banks (NPL ratio) remains historically high when ...

Due to the recessions brought about by the financial crisis from the end of the past decade, more and more EU companies and citizens have faced economic difficulties in recent years and have been unable to repay their loans. As a consequence, many EU banks have accumulated high volumes of non-performing loans (NPLs) in their balance-sheets. Although almost halved in comparison to December 2014, the ratio between NPLs and the total loans extended by EU banks (NPL ratio) remains historically high when measured against the ratios of other advanced economies. High levels of NPLs require banks to hold higher amounts of regulatory capital and pay a risk premium on liquidity markets, as a result of which their profitability and growth prospects diminish. To tackle this issue, a number of different initiatives have been adopted both at national and EU level. Within this context, in March 2018 the Commission adopted a comprehensive package of measures including a proposal for a directive aimed at fostering NPL secondary markets and easing collateral recovery from secured loans.

Loan servicers and buyers and recovery of collateral

29-11-2018

The two IAs accompanying the proposal are similar in the knowledge base underpinning the work and the quality of data and sources. However, there seem to be qualitative differences in the way research, analysis and consultation activities were presented. In this respect, the IA on secondary markets has more room for improvement than the one on the out-of-court enforcement procedure The latter complies more fully with the Better Regulation Guidelines, for example in terms of analysis of effectiveness ...

The two IAs accompanying the proposal are similar in the knowledge base underpinning the work and the quality of data and sources. However, there seem to be qualitative differences in the way research, analysis and consultation activities were presented. In this respect, the IA on secondary markets has more room for improvement than the one on the out-of-court enforcement procedure The latter complies more fully with the Better Regulation Guidelines, for example in terms of analysis of effectiveness and efficiency, quantification, attention to social impacts and impacts on SMEs.

Abundant liquidity and banks’ lending activity: an assessment of the risks

28-09-2018

The Committee on Economic and Monetary Affairs (ECON) asked experts to prepare for the Monetary Dialogue session of 24 September 2018 analyses of the risks related to the abundant liquidity and banks’ lending activity. This note, provided by Policy department A, gives an overview of the in-depth analyses prepared by the experts.

The Committee on Economic and Monetary Affairs (ECON) asked experts to prepare for the Monetary Dialogue session of 24 September 2018 analyses of the risks related to the abundant liquidity and banks’ lending activity. This note, provided by Policy department A, gives an overview of the in-depth analyses prepared by the experts.

ECB non-standard monetary measures, collateral constraints and potential risks for monetary policy

31-07-2018

For the Monetary Dialogue of 9 July 2018, the Committee on Economic and Monetary Affairs (ECON) asked monetary experts to analyse the risks and collateral constrains related to the ECB non-standard monetary measures. This note, provided by Policy department A, lists the in-depth analyses prepared by the experts.

For the Monetary Dialogue of 9 July 2018, the Committee on Economic and Monetary Affairs (ECON) asked monetary experts to analyse the risks and collateral constrains related to the ECB non-standard monetary measures. This note, provided by Policy department A, lists the in-depth analyses prepared by the experts.

Minimum loss coverage for non-performing exposures

03-07-2018

In March 2018, the European Commission presented a proposal to introduce statutory backstops for 'non-performing exposures'. These concern loans, debt securities or certain overdue off-balance-sheet items. Since the financial crisis, the EU has aimed to address the high numbers of these non-performing exposures, including in particular non-performing loans, as they risk destabilising the financial sector and thereby the EU economy. This briefing provides an initial appraisal of the quality of the ...

In March 2018, the European Commission presented a proposal to introduce statutory backstops for 'non-performing exposures'. These concern loans, debt securities or certain overdue off-balance-sheet items. Since the financial crisis, the EU has aimed to address the high numbers of these non-performing exposures, including in particular non-performing loans, as they risk destabilising the financial sector and thereby the EU economy. This briefing provides an initial appraisal of the quality of the impact assessment accompanying the Commission proposal

Unión bancaria - Informe anual 2017

22-02-2018

Está previsto que durante el periodo parcial de sesiones de febrero II el Parlamento someta a votación un informe de propia iniciativa sobre la unión bancaria en 2017. En el informe se abordan la cooperación entre autoridades, los riesgos inherentes a los balances de los bancos, las normas prudenciales y los desafíos emergentes. Asimismo, se indica que la unión bancaria permanece incompleta puesto que carece de un mecanismo de protección presupuestaria y de un sistema europeo de garantía de depósitos ...

Está previsto que durante el periodo parcial de sesiones de febrero II el Parlamento someta a votación un informe de propia iniciativa sobre la unión bancaria en 2017. En el informe se abordan la cooperación entre autoridades, los riesgos inherentes a los balances de los bancos, las normas prudenciales y los desafíos emergentes. Asimismo, se indica que la unión bancaria permanece incompleta puesto que carece de un mecanismo de protección presupuestaria y de un sistema europeo de garantía de depósitos.

The Provision of Critical Functions at Global, National and Regional Level - Is there a need for further legal/regulatory clarification if liquidation is the default option for failing banks?

30-11-2017

This paper defines critical banking functions and considers whether there is a need for further legal/regulatory clarification if liquidation is the default option for failing banks. We rely on EU law and soft law principles (FSB) bearing in mind that ‘liquidation’ is at times a loosely defined concept. Despite efforts to agree upon a set of qualitative and quantitative criteria to assess the critical nature, or lack thereof, of relevant functions we argue that simplification is needed. Given the ...

This paper defines critical banking functions and considers whether there is a need for further legal/regulatory clarification if liquidation is the default option for failing banks. We rely on EU law and soft law principles (FSB) bearing in mind that ‘liquidation’ is at times a loosely defined concept. Despite efforts to agree upon a set of qualitative and quantitative criteria to assess the critical nature, or lack thereof, of relevant functions we argue that simplification is needed. Given the discretionary element in the determination of public interest and critical functions and the existence of different legal sources with different purposes, we recommend a consistent application of the resolution rules to build up credibility in the Banking Union project, considering in particular the differential treatment by the competent resolution authorities in recent Spanish and Italian liquidation and resolution cases.

Autor externo

Rosa M. Lastra, Rodrigo Olivares-Caminal, Costanza A. Russo

The provision of critical functions at global, national or regional level

30-11-2017

The introduction of a bank resolution framework for EU banks has created the need for clear legal definitions of the main elements in resolution. This paper assesses one of these elements, namely “critical functions”, which encompasses the activities of a bank that are of significant importance for the real economy. The assessment of the regulation and implementation shows that there is room for sharpening the definition and equal application across all banks. It is questionable, however, whether ...

The introduction of a bank resolution framework for EU banks has created the need for clear legal definitions of the main elements in resolution. This paper assesses one of these elements, namely “critical functions”, which encompasses the activities of a bank that are of significant importance for the real economy. The assessment of the regulation and implementation shows that there is room for sharpening the definition and equal application across all banks. It is questionable, however, whether regulatory intervention is necessary given the on-going work of authorities at different levels. In turn, legislative intervention will be required to align the objectives of the resolution framework and state aid. The latter currently leaves more room for public support measures, which are not necessarily in the public interest.

Autor externo

Willem Pieter de Groen

Why Has ECB’s Very Accommodative Monetary Policy Not Yet Triggered a Rebound of Investment?

15-06-2016

The European Central Bank has adopted a series of unconventional monetary policy measures to combat the financial crisis and ward off the risks of a too prolonged period of low inflation. The policy package has led to a tangible improvement in borrowing conditions for both households and firms. Sovereign bond rates have reached record low levels even at relative long maturities in several euro-area countries. In theory lower financing costs should support consumption and investment via the increase ...

The European Central Bank has adopted a series of unconventional monetary policy measures to combat the financial crisis and ward off the risks of a too prolonged period of low inflation. The policy package has led to a tangible improvement in borrowing conditions for both households and firms. Sovereign bond rates have reached record low levels even at relative long maturities in several euro-area countries. In theory lower financing costs should support consumption and investment via the increase in bank lending and bond or stock issuance. In practice the main beneficiaries of ECB very accommodative monetary policy seem to be for governments via lower interest payments, while the effects on private spending and, in particular, capital formation have been limited, so far.

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