Bad omen

1 December 2017 By Lisa Jucca Follow @LJucca

Italy is leading the resistance to a European Central Bank plan to shrink banks’ bad debts. A victory will be empty, though. Ignoring defaulted loans hurts new lending. Failing to clean up legacy balance-sheet risks could also kill off the euro zone’s bank deposit scheme.

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The European Central Bank is open to changing its controversial proposal on provisioning for banks’ non-performing loans and may delay the proposed new rules, top banking supervisor Daniele Nouy said on Nov. 30.

Under the ECB guidelines, banks would be required to write down all new bad loans to zero after seven years. Italy has pushed back against the proposals, saying they would hold back lending, weigh on banks’ balance sheets and keep share prices depressed.

The legal services of the European Parliament and European Council, as well as the European Commission, have argued that the ECB does not have a mandate to set blanket rules that would apply to the banking sector.

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