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Regulation: EU NPL initiatives spell confusion for banks

Initiatives aim to create depository insurance scheme; targeted at new NPLs, not existing stock.


European Commission vice-president Valdis Dombrovskis hopes to complete banking union by June

In mid March, the European Commission (EC) announced a proposal aimed at preventing Europe’s banks from becoming embroiled in another non-performing loans (NPLs) crisis. A day later the European Central Bank (ECB) announced its own measures to achieve the same goal, although by different means.

The moves are part of an effort to appease some jurisdictions, most notably Germany, hesitating to agree to a pan-European depository insurance scheme (EDIS). The reluctance stems from the higher perceived risks in banking markets such as Greece, Cyprus and Italy, where the NPL problem has been most acute and progress has been relatively slow. EC vice-president Valdis Dombrovskis says the EC’s proposal provides hope that full banking union could be completed by June this year. EDIS is the final piece of that plan. 

The EC proposal seeks to introduce a minimum coverage ratio for NPLs through an amendment to the Capital Requirements Regulation, meaning that it will be binding for all banks in the Union. Loans originated after March 1 this year will be subject to a timeline of increasing provisions.

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