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EU banking watchdog calls for pan-European 'bad bank'

The European Banking Authority has called for the establishment of a pan-European "bad bank," Reuters reported Jan. 30, citing EBA head Andrea Enria.

Speaking in Luxembourg, Enria said the EU should set up an asset management company, or AMC, to help develop a market for nonperforming loans. The EBA, which serves as the EU's banking watchdog, said previous efforts to reduce Europe's large bad debt pile have failed because of a lack of comparable data and insufficient prospective buyers.

The AMC would buy loans at an assessed price rather than a market price, and would then have three years to sell them on at that assessed price, Enria said. If it could not, the bank would have to take the full market price hit.

The head of the European Stability Mechanism, Klaus Regling, said such a plan would probably require public-sector support and would look to acquire up to €250 billion of NPLs, Reuters reported in a separate Jan. 30 article. However, it would probably not involve the sharing of bank risks among EU states, he added. The ESM is the eurozone's bailout fund.

Banks in countries including Italy, Greece and Portugal have elevated levels of soured loans. Italy alone accounts for some €276 billion, Reuters noted.