EU Sees Taxpayers Funding Bank Bad-Loan Fix Within Current Rules
- Law allows precautionary aid to help banks clean balance sheet
- Working group on nonperforming loans publishes policy options
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European Union member states can use public funds to help struggling banks dispose of soured loans, but only within the limits of laws put in place since the financial crisis, according to an EU report.
While EU law normally stipulates that the need for “extraordinary public financial support” means a bank is failing and should be wound down, an exception is made for temporary state aid, known as a precautionary recapitalization, to address a capital shortfall identified in a stress test. “It seems conceivable” for governments to use such aid to finance an impaired-asset measure, the May 31 report states.