Andrea Enria, chair of the supervisory board of the European Central Bank (ECB), on Thursday outlined the key lessons from its latest supervisory review and evaluation process.
The ECB fears that some banks have not reserved adequately for the coming wave of defaults, as governments curtail support for borrowers provided during the initial lockdowns last year.
Enria points out that banks’ bad debt modelling no longer reflects their own forecasts for GDP contraction. He worries that time-limited moratoria on principal and interest payments may obscure the true extent of debtors unable to service their loans.
He argues that some banks have under-provisioned and that new lockdowns in 2021 mean that banks will face further hits.
Amid all this gloom, he must have been grateful to be asked about Brexit and so handed a little light relief.
Sticking points
The ECB has been in discussions for several years with UK-based banks, including the big US investment banks, on plans to move their business with European customers to the European Union.
London has lost a lot already.
