EC Consults on Minimum Coverage Requirements Related to NPLs
EC issued a consultation on the minimum levels of capital that EU banks must set aside to cover incurred and expected losses on newly originated loans that turn non-performing. EC is gathering stakeholder views on the possible introduction of statutory prudential backstops against insufficient loan-loss coverage for new loans that turn non-performing as well as on the potential functioning, scope, design, and calibration of such prudential backstops. The consultation will be open until November 30, 2017.
This initiative follows the comprehensive action plan to tackle the issue of non-performing loans (NPLs) agreed by all EU member states at the ECOFIN Council in July. Insufficiently provisioned NPLs are more likely to remain on bank balance sheets, which in turn may cast doubts on banks' future profitability, solvency, and ability to lend. The consultation seeks stakeholders' views on the possible introduction of minimum coverage requirements that would put EU-wide brakes on new NPLs by ensuring sufficient loan-loss coverage and seeks targeted input on how such requirements can best be designed. This will feed into the impact assessment that the EC is carrying out on the possibility of introducing such new rules as requested by the Council Action Plan on tackling NPLs in Europe and announced in the EC Communication on completing the Banking Union. The consultation and the impact assessment will help the EC complete a report, along with any legislative proposals, if needed.
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Comment Due Date: November 30, 2017
Keywords: Europe, EU, Banking, NPL, Statutory Prudential Backstops, Minimum Coverage Requirements, Banking Union, EC
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