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ECB, Greece And The Ticking NPL Time-Bomb

After the ECB regulatory tightening on banks’ non-performing loans (NPLs), announced with the well-known “addendum” to its guidance to banks of October 5, a barrage of anger came from the Italian banks and institutions (even the Minister of Economy Pier Carlo Padoan and the Bank of Italy took a stand) to defend the threatened stability […]

After the ECB regulatory tightening on banks’ non-performing loans (NPLs), announced with the well-known “addendum” to its guidance to banks of October 5, a barrage of anger came from the Italian banks and institutions (even the Minister of Economy Pier Carlo Padoan and the Bank of Italy took a stand) to defend the threatened stability of the Italian banking system.

At first, Daniele Nouy, chair of the SSM Supervisory Board, answered Padoan’s objections by hoping for an immediate implementation of the new rules as the Eurogroup broadly backed them. So far, the Law Office of the European Parliament seems to have ruled out the competence of the ECB to regulate banks in such a binding manner, giving space to a predictable delay of its entry into force well after the suggested date of January 1.

Given the clash between Italy and the ECB, it seems surprising that from Athens and other southern European capitals the only response has been a deafening silence – or even louder!. Yet the Greek banking system remains the most exposed to the NPL problem: in June there were still outstanding bad loans of €72.4 billion (gross) on Greek banks’ balance sheets, only marginally decreasing from the peak of €79bn registered at the beginning of 2016 or 35% of the total loans.

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