The ECB is declaring war on the risk of default by banks. These should be able to separate from it more easily in the future.
Europa is working on an internet platform for the sale of bad bank loans with a volume of several hundred billion euros. This is to help the economy of the euro zone, which has been battered by the corona crisis. “The idea is to open the market for buyers of smaller portfolios with an Amazon or eBay-style marketplace that can be browsed,” said the European Central Bank (ECB) expert, Edward O’Brien, who was involved in the plans. the Reuters news agency.
A conference on this subject will take place in Brussels on Friday. There will also be other ways in which banks can reduce their legacy burdens and the credit risks they face in the wake of the Corona crisis. This also includes a bad bank. The head of the ECB banking supervisory authority, Andrea Enria, supports such a processing unit for bad debts. Especially in southern Europe, especially in Italy, the banks have been struggling with their bad loans for years. Despite the temporary reduction, in the opinion of most bank regulators these are still too high and prevent the local banking industry from recovering.
The template for the trading platform developed by senior experts at the ECB is part of the eurozone’s efforts to reduce the still high number of problem loans on bank balance sheets. Bad credit is a big problem for the economy. Because a bank will act more hesitantly when granting loans the more bad loans it carries around with it. The finance ministers of the Eurogroup will discuss the proposals on October 5th.
In addition, the aim is to prevent these from being acquired at bargain prices by hedge funds that specialize in acquiring non-performing corporate loans. Banks usually part with their bad loans at prices that are a fraction of their previous value. “The bad loan market has been dominated by very few large buyers,” said O’Brien. “In a typical scenario, one of these firms could buy a very large portfolio at significant discounts.” With the move, Europe could stand up to a bit of the overwhelming power of the big credit investors on Wall Street.
DOMINANCE OF THE GREAT PLAYERS
After the financial crisis in 2008, large funds had acquired loans amounting to many billions of euros. Some of these portfolios then increased in value. The new platform devised by the ECB, which could be launched next year, is also intended to attract smaller investors. They may be willing to pay more. For example, loan packages could also be broken down to 10 million euros on the marketplace.
The providers of private platforms will also present their solutions on Friday. This also includes the Frankfurt loan platform Debitos, through which Italian loan packages have already been sold. According to a study by the accounting firm Deloitte, more than 450 billion euros in loans were sold in Europe between 2014 and 2019 – around half of which were taken over by Cerberus, Blackstone, Lone Star and Goldman Sachs.
PROPOSAL TO BE DISCUSSED ON FRIDAY
The ECB’s proposal is to be discussed by EU representatives on Friday. The Italian website BlinkS, which brings together buyers and sellers of loans, and debt auctions by American federal agencies, for example, provided ideas for the advance. If the EU states agree, the Internet marketplace could in future be subordinate to the EU bank resolution authority SRB.
“Success in buying or selling bad loans depends on a lot of inside information. Covid means there will be more bad loans. Every sale has to be transparent, ”says Bostjan Jazbec, Director at the SRB. From the point of view of the ECB expert John Fell, who is involved in the plans, bad loans pose an even bigger challenge. “The problem is that bad loans are too often understood to mean that it is limited to the banks,” said Fur. “But that’s much bigger, it affects the whole economy.”