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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.

Plenary round-up – Strasbourg, March I 2019

15-03-2019

Highlights of the March I plenary session included debates on Brexit, preparation of the European Council meeting of 21-22 March 2019, and the latest debate on the Future of Europe, with Peter Pellegrini, Slovakia's Prime Minister. Parliament also held debates on a proposed European human rights violations sanctions regime; the situation in Venezuela and Nicaragua; opening EU-US trade negotiations; climate change; gender balance in nominations to EU economic and monetary affairs bodies; and on the ...

Highlights of the March I plenary session included debates on Brexit, preparation of the European Council meeting of 21-22 March 2019, and the latest debate on the Future of Europe, with Peter Pellegrini, Slovakia's Prime Minister. Parliament also held debates on a proposed European human rights violations sanctions regime; the situation in Venezuela and Nicaragua; opening EU-US trade negotiations; climate change; gender balance in nominations to EU economic and monetary affairs bodies; and on the urgency to establish an EU blacklist of third countries with weak regimes on anti-money-laundering and countering terrorist financing. Finally, Parliament adopted first-reading positions on three further proposed funding programmes for the 2021-2027 period. A number of Brexit-preparedness measures were also adopted.

Setting minimum coverage for potential losses stemming from non-performing loans (NPLs)

06-03-2019

In March 2018, the Commission adopted a package of measures to tackle the risks stemming from the high levels of non-performing loans on EU banks' balance sheets. The package includes a proposal to amend the Capital Requirements Regulation, to introduce common minimum coverage levels acting as a 'statutory prudential backstop' for newly originated loans that become non-performing. Parliament is due to vote on the proposal in March.

In March 2018, the Commission adopted a package of measures to tackle the risks stemming from the high levels of non-performing loans on EU banks' balance sheets. The package includes a proposal to amend the Capital Requirements Regulation, to introduce common minimum coverage levels acting as a 'statutory prudential backstop' for newly originated loans that become non-performing. Parliament is due to vote on the proposal in March.

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.

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

Free movement of capital within the European Union

31-05-2018

Amongst the four fundamental freedoms that underpin the EU single market (free movement of persons, goods, services and capital), the free movement of capital is the most recent. Until the mid-1990s it did not exist in practice in a number of Member States. Financial operations in other Member States or in other currencies within the EU were subject to prior authorisation requirements by national authorities. These controls enabled national authorities to prevent or restrict financial operations. ...

Amongst the four fundamental freedoms that underpin the EU single market (free movement of persons, goods, services and capital), the free movement of capital is the most recent. Until the mid-1990s it did not exist in practice in a number of Member States. Financial operations in other Member States or in other currencies within the EU were subject to prior authorisation requirements by national authorities. These controls enabled national authorities to prevent or restrict financial operations. Free movement of capital became applicable with the 1993 Maastricht treaty, which removed all restrictions on capital movements and payments, both between Member States and with third countries. The principle has direct effect, meaning that it requires no further legislation at either EU or Member State level.

Banking union – Annual report 2017

22-02-2018

The European Parliament's own-initiative report on the banking union in 2017 is due to be voted during the February II plenary. It touches on cooperation between authorities, risks inherent in bank balance sheets, prudential rules and emerging challenges. It also notes that the banking union remains incomplete, in as far as it lacks a fiscal backstop and a European deposit insurance scheme.

The European Parliament's own-initiative report on the banking union in 2017 is due to be voted during the February II plenary. It touches on cooperation between authorities, risks inherent in bank balance sheets, prudential rules and emerging challenges. It also notes that the banking union remains incomplete, in as far as it lacks a fiscal backstop and a European deposit insurance scheme.

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.

Zunanji avtor

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.

Zunanji avtor

Willem Pieter de Groen

Provisioning policies for non-performing loans: How to best ensure a “clean balance sheet”?

16-11-2017

In view of a regular public hearing with the Chair of the Supervisory Board of the ECB in ECON on 9 November 2017, some academic experts for banking supervision were asked to assess which provisioning practices best ensure from a prudential perspective that banks present “sound and clean balance sheets” that do not carry uncovered or hidden losses. Some of the points raised by the experts in their briefing papers are highlighted in the following summary.

In view of a regular public hearing with the Chair of the Supervisory Board of the ECB in ECON on 9 November 2017, some academic experts for banking supervision were asked to assess which provisioning practices best ensure from a prudential perspective that banks present “sound and clean balance sheets” that do not carry uncovered or hidden losses. Some of the points raised by the experts in their briefing papers are highlighted in the following summary.

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