Is This the Silver Bullet for Italy's Bad Loan Problem?
- Rule change would protect capital of banks cutting bad debt
- Loan sales may intensify if penalties reduced, bank CEO says
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The answer to cleaning up bad loans still weighing down Italian banks may lie in a controversial proposal that would allow lenders to sell their debt at deep discounts without being forced to hold more capital.
European Parliament lawmaker Peter Simon, who’s leading the assembly’s work on updating prudential rules for the region’s banks, wants to make it easier to sell debt cheaply without having to adjust a calculation known as loss given default, which typically hurts banks’ capital ratios. Opponents of the change say it may let lenders off too easily and penalize the ones that have already reduced much of their bad-debt pile under existing rules.