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Tackling non-performing financial loans during the consequences on the Covid-19 pandemic. Reshaping the European Fiscal Framework

By on August 20, 2021

Tackling non-performing financial loans during the consequences on the Covid-19 pandemic. Reshaping the European Fiscal Framework

A statement supplied by money Watch brain of data and Advocacy Thierry Philipponnat at the American financial and personal commission hearing on 15 February 2021.

Fiscal approach

Reshaping the European Financial Framework

Thanks so much for appealing myself within this reading. It may be a honour for me personally to express various views together with you nowadays and then try to come across methods to the very major problem of dealing with non-performing debts from inside the aftermath associated with Covid-19 epidemic. As requested, i am going to likewise touch upon the basic outline advice generated by the EESC about the subject following the connection from the European fee on 16 December.


If I had been a banker or, ought I talk about, if I remained a banker, I would enjoy the proposal manufactured by the American Commission to produce a second market for non-performing personal loans, which can be at the heart of their December interaction. The previous investor knows that nontransparent financial markets are an effective way to create great edges, and experience tells us that such an industry would by production be nontransparent.

Sorry to say, I am not a banker or an investor anymore, but are inclined to look into the methods proposed to manage problematic through a fairly basic lens: ‘”Do the equipment recommended take a means to fix the challenge discovered, or not”? I might be absolutely agnostic to the query of knowing whether market excellent or negative. The truth is, I always discover doubt somewhat difficult: a tool is definitely a power tool and its neither great nor negative. From inside the real life, a power tool tends to be modified to a situation or don’t adjusted to another one one, referring to furthermore the scenario for areas.

We are now being expected a basic matter nowadays: “Is the development of a second market for non-performing money the most appropriate software to accomplish the bad situation of over-indebtedness arising from the pandemic and its financial and personal result?” As you may know, that is perhaps one of the most essential queries country wants manage presently.

Being reply to this doubt, we will need to point out the challenges. If we do this specification, we’re going to ask ourselves whether the product recommended, specifically to create an extra marketplace for non-performing personal loans and prepare for so-called precautionary recapitalisations of banks, handles the issues.

We now have three difficulties to tackle:

Secure economic consistency in a framework exactly where way too high a level of non-performing money could build issues for most banking companies and as a consequence setup a financial strength condition considering the interconnectedness of this American banking system;

Make certain banks can lend with the economic climate in spite of the reach they get from the climbing level of non-performing lending;

Eliminate, for folks together with small and medium-size enterprises, the debilitating effects of over-indebtedness, one thing obviously fundamental for the continuity of the financial and societal architecture in our civilizations.

Basically: how should we protect financial reliability whilst ensuring that the Covid emergency cannot degenerate into a people’s loss?

Let’s look strongly at the option proposed around the challenges recognized.

Will the creation of another marketplace for NPLs correct the financial stableness problem? As soon as the sector has been created, banks will actually sell their unique NPLs for a cheap price, thus understanding a loss of revenue that was until then likely. Clearly, this doesn’t fix the financial strength problems: when money is missing, actually stolen, and if the decrease was accomplished through a sale or unrealised in the event that financial products continue to the total amount sheet of banks, cannot change all. Incidentally, as we know, if the amount of cash stolen meets the own investments of some bank, that bank is actually destined to traditional. Regrettably, the development of a secondary market for NPLs is certainly not a miracle answer to eliminate this economic real life, the way it never earn an income that has been missed reappear.

Will the creation of another marketplace for NPLs correct issue associated with the over-indebtedness of people or of smaller than average average sizing organisations? Right here once again, the solution is “no”: any time funds are due, it is actually owed. This basic truth of the matter won’t be transformed, and an extra industry cannot prevent people and small business owners from getting jammed into over-indebtedness. Since we additionally determine, this case can establish large personal, economic and governmental issues as many are left on the side for the lane. Thereon entrance, i need to acknowledge your European Commission’s stated unbiased, in place three of the December Communication, for advantage administration enterprises purchase NPLs “to remove the most worth from (NPLs) by effective exercise sessions” will leave me a lot more than troubled towards fortune of debtors given the a lot of malpractices that economic Watch’s reports have revealed through the European loan servicers marketplace, while the issues that can arise within the pass of a financial obligation from just one proprietor to another.

Will the precautionary recapitalisation of banks save the afternoon? For the creditors being bailed around with public funds and taking advantage of ethical danger, the solution is evidently “yes” and we also can consequently comprehend his or her drive. Especially culture, which is about wrong moral threat game as banking companies’ damages shall be socialised whenever her income would have stayed private, the answer is demonstrably “no”.

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