EU Sees Taxpayers Funding Bank Bad-Loan Fix Within Current Rules
(Bloomberg) -- European Union member states can use public funds to help struggling banks dispose of soured loans, but only within the limits of laws put in place since the financial crisis, according to an EU report.
While EU law normally stipulates that the need for “extraordinary public financial support” means a bank is failing and should be wound down, an exception is made for temporary state aid, known as a precautionary recapitalization, to address a capital shortfall identified in a stress test. “It seems conceivable” for governments to use such aid to finance an impaired-asset measure, the May 31 report states.
The document says the conditions in EU law for giving state aid to a solvent bank must be observed. “Dealing with the issue of high NPLs should not imply any deviation from the rules of the banking union,” it states, referring to the package of laws intended to bolster financial stability and deepen integration in the bloc.
Andrea Enria, head of the European Banking Authority, has been one of the most vocal proponents of allowing state aid for banks that incur losses in the course of selling bad loans. He told EU lawmakers in April that state aid could be used to “deal promptly and decisively with the significant legacy of asset-quality problems in the European banking sector, which remains a drag on the EU economy.”
Freeing up public money to offset banks' losses could help to chip away at the 1 trillion-euro ($1.1 trillion) bad-debt mountain and could smooth the way for bailouts in the EU's hardest-hit countries, including Cyprus, Portugal and Italy.
Monte Paschi
Italy is negotiating the terms of a precautionary recapitalization for Banca Monte dei Paschi di Siena SpA, which is trying to offload about 30 billion euros of bad loans through a securitization. Monte Paschi will “dispose of its entire nonperforming loans portfolio on market terms,” the European Commission said on June 1.
The report, prepared by representatives of the European Commission, EU member states and several financial supervisors, also outlines measures to improve secondary markets for nonperforming loans, reform national insolvency frameworks and enhance the supervision of banks' bad assets.
--With assistance from Nikos Chrysoloras and Boris Groendahl
To contact the reporter on this story: Alexander Weber in Brussels at aweber45@bloomberg.net.
To contact the editors responsible for this story: Patrick Henry at phenry8@bloomberg.net, Boris Groendahl
-
Navigating Energy Crossroads: S Jaishankar's Call For Diversified Supply Chains At G20 Ministerial Meeting
As geopolitical fault lines continue to test maritime trade routes and commodity flows, Jaishankar's message remains pertinent: true economic resilience requires open markets, protected transit lines, and a genuine commitment to multilateral cooperation rather than coercion.
-
Indians Are Travelling, But Not Every Journey Is A Holiday | The Week In Whys
Pilgrims, patients and working women are the real travellers, and the system hasn't quite caught up with them.
-
Getting To Work Costs Women More | The Reason Why
It is not just about women paying more than men. It is about women paying much more in cities than in villages.
-
AI Bias In Investing Cannot Be Eliminated, But It Can Be Governed
Framing is a particularly important example as identical financial information presented in terms of gains rather than losses can lead an LLM to reach a different assessment.
-
Joining The Dots | Dark Skies, Steady Diya: Why Hope Holds This Diwali
With war, a weak rupee and foreign outflows weighing on sentiment, policymakers at the NDTV World Summit and market veterans at NDTV Profit Ignite: Diwali Edition offered the same advice: stay invested and filter out the noise.
-
The Curious Case of Equitas Small Finance Bank And A CEO Who Quit For Stock
PN Vasudevan believes persistent investor concerns over a perceived conflict of interest had become a governance overhang on Equitas Small Finance Bank's stock, even as the lender improved profitability and asset quality.
-
Talking Points This Week: AI Cash Burn, A Tiger Comeback And An India That Still Finds Its Own Path
India is not immune to higher oil or tighter global liquidity, yet its earnings base is broader, its domestic policy levers are still available.
-
Foreign Investors Own Half Of HDFC Bank and ICICI Bank. An LTCG Cut Could Matter Most Here
Foreign portfolio investors have US$115 billion parked in HDFC Bank, ICICI Bank. If the government cuts long-term capital gains tax, Jefferies says returning foreign money could land here first.
-
'Never Seen This Level Of Negativity': Sandeep Tandon Says The Next Rally May Be Closer Than You Think
Veteran investor Sandeep Tandon says foreign selling is easing, large-caps are due a comeback and mid-caps are crowded, while he turns positive on gold, power and pharma this Diwali.
