Professor of Economics University of Milan and chief Editor European Economy - Banks, Regulation and the Real Sector,
Professor of Economics , Dean of Research, Editor of European Economy-Bank Regulation, European University Institute
Chair in International Banking Law and Finance. University of Edinburgh,
Director (em.), Max Planck Institute for Research on Collective Goods,
Head of the Department of Economics, Athens University of Economics and Business,
Head of Research Division, The Americas, The German Institute for International and Security Affairs (SWP)
Video and audio recording
The European and national regulatory authorities are concerned about the repercussions of the growing impaired assets and their consequences on financial stability in the near future. On the 6th of July, Bruegel, together with European Economy - Banks Regulation and the Real Sector and SWP-Berlin held an event on non-performing loans. This event presented the issue of European Economy – Banks, Regulation and the Real Sector (issue 2017.1) on the main exit strategies from non-performing loans on the table, with a particular focus on the set up of a state-backed Asset Management Companies (AMCs). The roadmap consists of enhanced supervision and reforms in the restructuring, insolvency and debt recovery frameworks as to increase recovery value from NPLs and reduce the length of work-out procedures. In the short-term, restructuring banks with high levels of impaired assets and developing secondary markets were defined as priorities.
While there is a large stock of NPLs to resolve, it is also important to stop the stocks from growing - for some countries, the current default rate is higher than the cure rate and the underlying factors have been pointed out as low growth, high unemployment, lack of disposable income or high interest rate margins. On the resolution side, the issues of asset composition - non-tradable assets may not present a lemons problem but a “patience problem”- and pricing were deemed of key importance. As it was discussed, real economic value is not defined if there is no market. The formation of secondary markets, on the other hand, has been hindered by asymmetries in legal regimes, governance or state-aid rules.
Despite the fact that the NPLs are concentrated in few countries, the possibility of spill-overs makes the case for the set-up of a European AMC, a project filled with open questions – the mutualisation of risks or even the decision of which banks should be allowed to transfer assets to AMC outside of the state-aid envelope illustrate what boils down to be a political willingness issue.
Event notes by Inês Goncalves Raposo
Presentation by Giorgio Barba Navaretti and Giacomo Calzolari
Presentation by Maria Demertzis
Presentation by Aimilios Avgouleas