Europe self liquidating loans

Shielding banks from fire sale conditions can be especially beneficial if several banks are attempting to resolve their NPLs at the same time: systemic AMCs, in other words, can provide an important coordination role.Other benefits of AMCs are related to a swift reduction in uncertainty surrounding the profitability and solvency of banks once NPLs are transferred to the AMC.The main function of systemic AMCs is to provide a “bridge” for the inter-temporal pricing gaps which emerge when market prices for NPLs and the underlying collateral are temporarily depressed.

But it must be complemented by structural reforms to enhance the recoveries and the net present value of NPLs, and by complementary measures to facilitate the development of NPL markets.Such excessive indebtedness often means that corporate investment cannot keep pace with the expected recovery in the real economy.Moreover, keeping over-indebted and ultimately non-viable firms alive by not resolving NPLs in a timely manner generates artificial and unhealthy competition for viable firms in the market.Against this backdrop, it is clear that a comprehensive approach to NPL resolution, involving some degree of coordination at the European and national level, is necessary.The NPL problem cannot be solved by any single policy measure be it supervisory, macroprudential, or structural in nature.

Asset management companies (AMCs) have often been used to manage distressed assets arising from systemic financial sector stress (Cerruti and Neyens, 2016) and have a proven track record in making significant contributions to the clean-up of banking sectors suffering from NPL problems.

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Europe self liquidating loans introduction

Europe self liquidating loans

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