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ECB proposes transaction platforms to facilitate NPL sales

The ECB proposed creating transaction platforms to facilitate the sale of nonperforming loans, in a bid to address European banks' high stock of bad loans.

An NPL platform that will serve as an electronic transaction system, a data warehouse and a trade repository that is easily accessible to buyers and sellers of bad loans will increase transparency around NPLs, the ECB said. It will also reduce transaction costs and help resolve coordination issues in the case of multiple creditor claims and open the market up to new investors.

As part of the plan, banks may be offered incentives to use an NPL platform. "The precise nature of the incentives may depend on the jurisdiction in which the platform is established, but they could, for example, be tax-based in nature," the ECB added.

The central bank also stressed that state aid will not be necessary to set up the platform and support its operations compared to a traditional, systemic asset management company, and that the cost of establishing the platform should be "relatively low."

"It is not necessary, and for governance reasons not even preferable, that the state takes an ownership stake in the platform," the ECB said, adding that the role of regulators in the creation of the platform should be limited to regulation, support during the start-up phase and incentivizing participation.

The proposal is part of European regulators' wider push to tackle banks' bad debt. In October, the ECB outlined new guidelines that will force banks across the eurozone to set aside more capital to cover future bad loans.

The plan was met with opposition by Italian banks and politicians, who fear that the ECB would also adopt new measures in relation to banks' existing NPL stocks, which stand at over €300 billion in Italy. The EU Council also criticized the NPL plan, saying the ECB lacks jurisdiction to implement the rules.

The ECB, however, is sticking to the substance of its initial NPL plan despite having to make several adjustments to the proposal following criticism from Italy and the EU Council, Bloomberg News reported Nov. 27, citing "people with knowledge og the matter."