By Hans Bentzien
FRANKFURT (Dow Jones) – The head of the ECB banking supervision, Andrea Enria, wants a quick elimination of non-performing loans after the Corona crisis. “We have to be faster than after the previous crisis. The banking union should make that possible,” writes Enria in an opinion piece published on the website of the European Central Bank (ECB). Asset managers could help avoid the mistakes of the past, he added. This refers to so-called bad banks, to which problem loans are outsourced.
Enria points out in his contribution that the credit quality of euro area banks has still not returned to pre-crisis levels twelve years after the failure of Lehman Brothers and nine years after the first private haircut during the Greek debt crisis. In the meantime, the ECB and the banking regulator Eba have called for more active handling of such legacy issues.
“Past experience shows, however, that the cleanup of bank balance sheets was much faster and the ability to lend was restored much more quickly when asset managers were used,” writes Enria.
Enria also sees such asset managers as a tool to initiate a restructuring of the oversized European banking market. “Asset management companies can combine the support of banks with many non-performing loans with an appropriate form of conditionality and thus provide for the much-needed improvement of business models,” said Enria.
Europe should react collectively and not nationally
The ECB’s banking supervisor also advocates a joint European response instead of uncoordinated national initiatives. “The exogenous and symmetrical nature of the shock caused by the pandemic should provide good conditions for an agreement on a European initiative,” he writes.
It is not about helping banks that have taken excessive risks and have not managed them properly. Rather, banks all over Europe should be enabled to support households and companies. In addition, the change to a greener and more technology-oriented economy can be accompanied.
In the post, Enria indicates that he would like the creation of a major European bad bank. Alternatively, however, an appropriately constructed network of national asset managers is also conceivable, in which financing and pricing would have to be anchored in Europe.
National bad banks should benefit from European funding
“If funding is guaranteed by a European body, then any national asset manager, regardless of their location, would benefit from the creditworthiness of the EU,” argues Enria. Such financing naturally also requires an appropriately uniform and comprehensible evaluation methodology and the necessary data.
According to Enria, direct access to funds from this source should only be given to banks that their supervisor believes will be viable after the crisis. In the case of other institutions, access must be linked to strict conditions, including restructuring measures.
“In the unlikely event that such a system should lead to losses, it must be designed in such a way that their communitarisation is limited or even excluded,” writes Enria. In his assessment, the current legal framework allows the above-mentioned measures. “But if necessary, we should also be ready to change the laws.”
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(END) Dow Jones Newswires
October 27, 2020 07:41 ET (11:41 GMT)