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EU parliament says ECB goes beyond its mandate on bad loans plan

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11/08/2017 | 05:13pm CET
European Central Bank announces interest rate decision in Frankfurt

The European Parliament dealt a blow to the European Central Bank's plan to speed up the offloading of lenders' bad loans saying in a legal opinion the Frankfurt-based supervisor was overstepping its authority.

The move puts additional pressure on the ECB supervisory unit to change its plan before it enters into force next year. There has been strong criticism from banking lobbies and Italian authorities who fear a negative impact on domestic lenders.

In a non-binding opinion, seen by Reuters, the legal service of the European Parliament said the ECB's Single Supervisory Board "has no competence" to adopt the plan in its current form because it imposes "binding rules of general scope applicable to all banks" supervised by Frankfurt.

The document, dated Nov. 8, came the day before the ECB's top supervisor Daniele Nouy is due to speak to the economic affairs committee of the EU parliament in Brussels.

The ECB proposed in October new guidelines for euro zone banks under its watch to offload loans that turn bad, a bid to avoid a new build-up of non-performing loans (NPLs) that have saddled the bloc's lenders for years and limited their ability to support economic growth.

The draft guidelines give banks seven years from January to provide for credit backed by collateral and two years for unsecured debt, setting stricter targets.

Italy, where the bad loans problem is particularly acute, fears that an excessively fast reduction of NPLs could lead to fire sales of assets and big holes in banks' balance sheets.

The ECB proposal is currently under consultation and Frankfurt has said that it was not planning significant changes to the original plan.

But the legal service of the European Parliament made clear that the guidelines would need changes because they effectively impose new capital requirements to banks, a measure that goes beyond the ECB's mandate and it is instead a prerogative of EU legislators, including the EU parliament.

The ECB can impose provisioning measures on banks, but must do it only to specific lenders, the opinion said.

Instead, in the guidelines the ECB is requiring that "all banks" under its remit apply stricter provisioning policies against bad loans, the document stressed.

The legal opinion reflects concerns raised by the president of the EU assembly, Antonio Tajani, in a letter sent to the ECB in October.

The European Commission, which holds the exclusive power of proposing laws in the EU, is set to present new legislative measures to reduce bad loans by next spring.

The ECB has already signalled that it may softened a more ambitious plan to force banks to offload more quickly their existing stock of bad loans, which amount to nearly 900 billion euros (£796 billion), according to the European Banking Authority.

(Reporting by Francesco Guarascio; editing by Philip Blenkinsop/Jeremy Gaunt)

By Francesco Guarascio

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