European Central Bank Lobbies for Creation of Bad Bank

21 April 2020 – The European Central Bank (ECB) is pressing the European Commission to consider the creation of a bad bank that could potentially serve as a repository for eurozone banks’ bad debts.

According to an article in the Financial Times, high-level meetings have already taken place in Brussels.  Representatives of the ECB have argued that the current pandemic is making such a move more crucial than ever, as European banks continue to struggle with the burden of non-performing debts from the last financial crisis. While banks had been having a measure of success in cleaning up their balance sheets, the current downturn has put a swift end to the sales. The pre-existing debt levels are seen as likely to further impede an eventual recovery from the Europe-wide lockdown.

The ECB’s proposal, however, is facing resistance in the European Commission, which would prefer to avoid any aid before putting into place measures, approved in 2016, which would require imposing losses on the banks’ shareholders and creditors.

While the NPL ratio in Portugal had fallen to 7.7% by the third quarter of 2019, Greek banks still an exposure that is the equivalent of approximately 35% of their total stock of loans.

Original Story: Observador – Edgar Caetano

Translation/Summary: Richard D. Turner

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