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Resolving Non-Performing Loans: A Role for Securitisation and Other Financial Structures?

Author

Listed:
  • Fell, John
  • Moldovan, Claudiu
  • O’Brien, Edward

Abstract

Large stocks of non-performing loans (NPLs) on euro area bank balance sheets continue to present risks to financial stability. Significant legal and administrative reforms have been undertaken over recent years in countries with high levels of NPLs to streamline insolvency proceedings and maximise NPL recovery values. Yet, the market continues to provide low NPL valuations that result in wide bid-ask spreads, thus impeding large-scale NPL sales. This special feature highlights the potential role and benefits of co-investment strategies (between the private sector and the state) for addressing NPLs. These co-investment strategies may reduce information asymmetries between buyers and sellers, thereby enabling transactions that might otherwise not occur, or facilitate sales at higher prices. Moreover, the proposed schemes are priced at market levels and may, therefore, be free of state aid. JEL Classification: G00

Suggested Citation

  • Fell, John & Moldovan, Claudiu & O’Brien, Edward, 2017. "Resolving Non-Performing Loans: A Role for Securitisation and Other Financial Structures?," Financial Stability Review, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:fsrart:2017:0001:3
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    File URL: https://www.ecb.europa.eu//pub/pdf/fsr/art/ecb.fsrart201705_03.en.pdf
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    Citations

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    Cited by:

    1. Budnik, Katarzyna & Dimitrov, Ivan & Groß, Johannes & Kusmierczyk, Piotr & Lampe, Max & Vagliano, Gianluca & Volk, Matjaz, 2022. "The economic impact of the NPLcoverage expectations in the euro area," Occasional Paper Series 297, European Central Bank.
    2. Suarez, Javier & Sánchez Serrano, Antonio, 2018. "Approaching non-performing loans from a macroprudential angle," Report of the Advisory Scientific Committee 7, European Systemic Risk Board.
    3. Bolognesi, Enrica & Stucchi, Patrizia & Miani, Stefano, 2020. "Are NPL-backed securities an investment opportunity?," The Quarterly Review of Economics and Finance, Elsevier, vol. 77(C), pages 327-339.
    4. Tölö, Eero & Virén, Matti, 2021. "How much do non-performing loans hinder loan growth in Europe?," European Economic Review, Elsevier, vol. 136(C).
    5. Salvatore Cardillo & Raffaele Gallo & Francesco Guarino, 2021. "Main challenges and prospects for the European banking sector: a critical review of the ongoing debate," Questioni di Economia e Finanza (Occasional Papers) 634, Bank of Italy, Economic Research and International Relations Area.
    6. Ratnovski, Lev, 2020. "COVID-19 and non-performing loans: lessons from past crises," Research Bulletin, European Central Bank, vol. 71.

    More about this item

    Keywords

    financial stability; NPL; risk;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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