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The banks in Greece and Italy who are trying to get rid of a "mountain" of red loans, could soon be helped by the monetary policy officials of the European Union.
Brussels is preparing a legislative framework aimed at "mitigating" the capital shock that banks generally accept when they sell nonperforming loans, with losses for themselves, according to a Bloomberg report.
This could stimulate Greek and Italian banks, which have accumulated the biggest problem red loan portfolio in the EU, difficult to eliminate.
"This will help banks clean up their distressed badet balances without committing much of their equity and lending capacity," Bloomberg said. The document essentially presents a compromise proposal on the framework of banking legislation. The framework is defined by the European Parliament and the Austrian Government, which played a leading role in the case of the 28 EU Member States.
The proposal is the latest indication that EU monetary policy makers want to apply lighter rules on capital and liquidity, following the ceaseless demands of banks, who are struggling to boost their profits after a long period of low income interest rates and fierce competition from their foreign competitors.
This new "cure" for the redemption problem by the mbadive unloading of PNP is part of a broader rehab of European banking legislation that has already begun in the last two years.
What (will) apply to the risk of badets
According to the current rules, each bank must adjust the statistical models that it uses to measure the risk of its badets when it sells a set of redundant loans with a loss greater than that expected by the models. These adjustments / parameters can create a major capital problem in a bank.
The new framework will give banks the ability to avoid such capital shocks when they sell damaged portfolios with numerous red loans accumulated.
The new measure, if implemented, will apply to red loan sales granted after November 23, 2016 and will cease to apply three years after its implementation, the document says.
The condition for a bank to participate in this program is to sell more than 20% of its "red" portfolio in the new framework.
European ministers will of course have to sign this new set of rules and discuss them at the next meeting on 4 December.
Daniel Nui, head of ECB supervision, is among the objections to this proposal. This framework "kills" the credibility of European models of risk measurement vis-à-vis their foreign competitors.
Source: www.newmoney.gr
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