European NPLs through the crisis: a policy review
| Date | 13 November 2017 |
| DOI | https://doi.org/10.1108/JFRC-02-2017-0029 |
| Pages | 413-421 |
| Published date | 13 November 2017 |
| Author | Nadege Jassaud,Edouard Vidon |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial compliance/regulation |
European NPLs through the crisis:
a policy review
Nadege Jassaud
Single Resolution Board, Brussels, Belgium, and
Edouard Vidon
Banque de France, Paris, France
Abstract
Purpose –The unfolding of the financial crisis in parts of Europe has highlighteda number of challenges
which can be analysed through the prism of NPLs. These included the discrepancies across supervisory
regimes,the limitations of macro-prudential supervision and the diversityof NPL resolution approaches.
Design/methodology/approach –The authors review policylessons from the crisis in dealing with the
NPL problem.
Findings –The paper highlights some key recommendations–the need for intrusive supervision, strong
macro-financialsurveillance and NPL resolutionapproaches that provide the right incentives.
Originality/value –These recommendationscan help inform the current debate regardingregulatory and
structuralinitiatives to tackle NPLs.
Keywords Insolvency, Supervision, Systemic risk, Resolution, Banking crisis, Banking regulation
Paper type General review
1. Introduction
In the wake of the global financial crisis (GFC), issues surrounding balance sheet quality
have –once again –come to the forefront. In Europe in particular, the unfolding of the
banking dimension of the crisis has highlighted a number of supervisory and macro-
prudential challenges, which can be analysed through the prism of non-performing loans
(NPLs): the supervision weaknesses prior to the crisis and the role of macro-financial links
through the crisis.
The establishment of the single supervisory mechanism (SSM) has enabled decisive
progress towards a common approach for NPL resolution. While the European Banking
Authority (EBA) proposed a common definition ofNPLs, the European Central Bank (ECB)
performed a comprehensive balance sheet assessment, and drafted a dedicated guidance to
banks.
Still, growing or persistently large, system-wide NPL stocks raise macroeconomic and
prudential policy concerns. In that respect,the legacy of the crisis is still with us: aggregate
non-performing exposure (NPE[1])ratio for euro area significant institutions (for total loans
and advances) amounted to 6.4 per cent at end-September 2016 (almost one trillion euros),
equivalent to nearly 9 per cent of the euro area GDP (ECB, 2017). This average conceals
important differences across countries and institutions. Importantly, these are gross
numbers that are met by various levels of provisioning. Yet, and eventhough international
The views expressed in this paper are solely those of the authors and do not represent the policies or
opinions, past or future, of the Banque de France, or of the SRB or any of its board members.
European
NPLs through
the crisis
413
Journalof Financial Regulation
andCompliance
Vol.25 No. 4, 2017
pp. 413-421
© Emerald Publishing Limited
1358-1988
DOI 10.1108/JFRC-02-2017-0029
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