EBA bad bank plan gets mixed response

Author: Lizzie Meager | Published: 13 Feb 2017

A plan mooted by the European Banking Authority’s (EBA) chairman Andrea Enria to create an EU-wide designated fund for dealing with the continent’s bad loan problems has been met with a lukewarm response.

The proposal, which is still at an early stage, would entail establishing a publicly-funded so-called bad bank similar to those seen in Ireland and Spain in the aftermath of the financial crisis. It would relieve Europe’s financial institutions of the $1 trillion worth of non-performing loans (NPLs) sitting on their balance sheets and restricting lending.

A German government official said an EU-wide bad bank is not necessary
“The real moral hazard here is for jurisdictions that have already grasped the nettle on this,” said David Ampaw, partner at DLA Piper. “Taxpayers in Ireland and Spain have already funded bad banks, so to ask them to do so again would be difficult.”