EU to Advance with Bank Regulation

aviationIn 2018, the European Commission will introduce initiatives for the development of secondary markets for Non-Performing Loans (NPLs) and the protection of secured creditors from borrowers’ default. This comes against the alarming accumulation of NPLs. The sheer volume of NPLs have overstretched the administrative capacities of the European systemic banks, contributing to inefficiencies, reduced management flexibility and increased transaction costs. Therefore, the European Commission’s initiative is aimed at the development of a harmonized EU framework whereby services such as credit restructuring, collateral administration and debt collection can be efficiently delegated to secondary private market entities.

The above initiative goes in tandem with the need for protection of secured creditors from borrowers’ default. This second part of the initiative, aims to remedy the fragmentation of Member States laws and develop fair and adequate measures to recover value from secured loans when the debtor is in risk of default, which in turn will avert the risk of mounting anew NPLs. This new initiative will allow banks to acquire ownership of encumbered assets in an accelerated, extra- judicial in nature procedure. The new, sovereign backed security, will offer all parties increased access to finance as well as more credible options for creditors to secure their loans.

The expected proposals have already stirred opposition especially over financial protection and judicial oversight. Therefore, the shape of the final rules will depend on the negotiations and amendments prior the proposals are launched and during the decision-making phase.