The EU Commission today presented a package of measures to reduce non-performing loans. Specifically, the Commission proposes a binding minimum limit on provisions for bad loans for all European banks. This complements the European Central Bank’s initiative, planning similar requirements for the 118 largest banks under its direct supervision. The Commission also intends to oblige the Member States to adapt their insolvency legislation on secured loans between banks and companies. As insolvency proceedings often take too long, the parties are to be given the opportunity to agree on an accelerated out-of-court procedure. Consumer credit is excluded from this mechanism. The Commission also proposes further harmonisation of national secondary markets for non-performing loans and makes recommendations to Member States on the establishment of national asset management companies (“bad banks”) in line with EU banking and state aid rules.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
“It is high time that the Commission tackles the problem of bad loans, following the hiccup in the European Parliament about the ECB’s actions. Mandatory minimum requirements for all European banks are urgently needed. The level of bad loans is still higher than before the last financial crisis, and institutions have to prepare themselves for the next downturn during the current upswing.
We urgently need a leap forward in the harmonisation of European insolvency law, rather than the piecemeal approach currently followed by the Commission. Accelerated procedures for special cases of secured loans between banks and companies are not enough. The Capital Market Union can only become a reality if all EU member states have effective insolvency proceedings in place. However, it is narrow-minded from a European political point of view when the German Federal Government opposes limited progress in insolvency law only because German insolvency law comparatively stands better. Only unified European standards will set the frame for risk reduction in the financial sector which need to go hand in hand with further risk sharing. Without these crucial steps a resilient Banking Union will remain a distant vision.
The European Commission’s recommendations regarding the composition of national bad banks are important to avoid state subsidies for struggling banks. It would be even more important to set up a European bad bank that follows EU state aid law and that does not leave the business of bad loans to Blackrock and other private equity funds alone.”
Commission package of measures to reduce non-performing loans in the banking sector: