EU Regulations Have Created Non-Performing Loans Crisis
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Dec. 29, 2016 (EIRNS)—Roland Barazon, former editor of the Salzsburger Nachrichten and currently editor of Der Volkswirt, has pointed to one major cause in European Union regulations for the crisis of the commercial side of banks. The focus is, of course, the Italian banking crisis, centered around a high quota of non-performing loans (NPLs). Barazon explains that whereas in former times, banks would negotiate a solution that helps debtors (firms) out of the crisis, this has become impossible because of the Basel III regulations, which mandate an immediate death sentence for the customer.
Barazon wrote in Deutsche Wirtschaftsnachrichten, "A customer is rated as being at risk when his account has been overdrawn for more than 90 days. For this, it is irrelevant whether this customer has €1 million deposited in the bank, or is really in trouble. The bank must in either case cover all claims with additional capital. Here, a so-called need for capital resources is created, which in many cases does not exist.
"If problems arise in a company, the bank must immediately put on the brakes, rate the claims as ‘at risk,’ cut further financing, and cover the existing claims with a lot of capital resources, even if the company has assets.
"The primary task of a bank should be to overcome a difficult phase together with its customer. Today, a bank can no longer do this. The consequence: In many cases, troubled companies are unable to overcome a crisis, they go down, and the bank loses all claims. Were the bank in the position to help, many firms would survive."