EU Bad-Loan-Fiasco-Reform Loses Teeth, Adds Sweeteners for Banks (Funded by Taxpayers)

After much lobbying, guidelines for banks become “non-binding expectations,” says the ECB.

Banks in Europe have won yet another key regulatory battle, and once again largely at the expense of Eurozone citizens, both in their role as taxpayers and bank customers: How to deal with their bad loans.

These non-performing loans (NPLs) are a long-festering massive problem at European banks. At most recent count, the total was estimated to be €759 billion, or 5.15% of total loans. By comparison, the NPL ratios in the US and UK banking sectors in 2016 were 1.3% and 0.9%, respectively. Currently six (out of 19) Eurozone countries have an NPL ratio above 10%:

  • Ireland: 12.8% (down from 15.8%)
  • Italy: 11.8% (down from 16.6% in 2016)
  • Portugal: 18.2% (down from 19.2% in 2016)
  • Slovenia: 13.6% (down from 19.7% in 2016)
  • Greece: 46.6% (no change since 2016)
  • Cyprus: 34.0% (down from 49% in 2016)

After years of promising sweeping reforms to finally address the NPLs in various stages of decay on EU banks’ balance sheets, the European Commission and European Central Bank have unveiled a regulatory package with little teeth but lots of sweeteners (for the banks)

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