Germany scuppers talk of “bad loan” bank in EU
(2 February 2017 – Europe) According to the European Union (EU)’s banking watchdog, it should create a publicly-funded asset management company to sweep up the bad loans.
The European Banking Authority (EBA) said dealing with the non-performing loans was "urgent and actionable". Its chairman, Andrea Enria, said that there needs to be a market created for bad loans, which could push up their price.
The plan was backed by Klaus Regling, head of the European Stability Mechanism, the EU’s bailout fund, who added that the new entity should aim to acquire up to €250 billion (A$352 billion) of bad loans.
According to the plan, the bill would have to be backed up by the creditors and the lender's home countries, so the risk would not be shared among EU states. However, a German government official said the country sees no value in setting up the “bad bank”.
"It is not clear what the added value of a European bad bank would be," a German government source told Reuters, adding that non-performing loans are a problem "only in certain countries".
The EU banking system has some €1.06 trillion of non-performing loans, amounting to 5.4 percent of the sector’s total loans. That is more than triple of the level in the banking systems of Japan or the US.
Italian banks account for a quarter of these with €276 billion of bad loans
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