The final step in the repair of the EU banking sector is cleaning up legacy assets. Otherwise, all of the work we have done to strengthen banks’ capital and assess the quality of their assets will not have the desired positive impact on new lending into the real economy.
Progress is in train but has been slow to date. Although asset quality issues are particularly relevant in some Member States, this is a single market problem and coordinated action is vital for success.
The ongoing effort of supervisors in pushing banks to take action requires that the supporting infrastructure is in place. This means fixing legal systems, which will take time, and addressing market failures in the secondary market for non-performing loans (NPLs), which can be done now. There are legitimate questions about how this should be done, which are addressed in this paper, but those should not be a cause for delay. Whether it be a single European Asset Management Company or a coordinated blueprint for national governments to enact is less important than taking coordinated action urgently.