MNI: Complete Banking Union Seen By End-2018, EC Says

By Tara Oakes

     BRUSSELS (MNI) - The European Commission Wednesday called for the

completion of the banking union by the end of 2018, pressing for further action

on Non Performing Loans.

     As Market News reported earlier this week, the EC said in the communication

that they want to push ahead with EU efforts on dealing with NPLs in the bloc.

     "While Member States and banks themselves have a primary responsibility in

tackling Non Performing Loans, integrating national and European Union level

efforts is warranted to make an impact on Non Performing Loan stocks and prevent

the future build-up of new Non Performing Loans on banks' balance sheets," the

communication reads.

     The communication is non-binding and not at this stage a legislative

proposal, but seeks to clarify EC positions on key issues. In their own words,

the Commission are just "considering possible ideas".

     But the NPL stance is unlikely to please the Italian lobby who are already

worried about the ECB's tighter capital requirements on NPLs, as reported by MNI

yesterday.

     Statuary prudential backstops against new NPLs are being considered at this

stage, the EC said.

     "Although average provisioning levels have recently increased in certain

Member States with high NPL stocks, loss recognition is sometimes still too slow

and low to allow for effectively resolving NPLs," the document read.

     "Statutory prudential backstops against NPLs arising from newly-issued

loans would set for the future common minimum levels of capital set aside by EU

banks to cover incurred and expected losses on NPLs."

     Action is also needed to unblock the "third pillar" of the banking union -

European Deposit Insurance Scheme (EDIS). Its progress has ground to a halt

between the European Parliament and Council.

     In an attempt to unblock the depositor protection initiative, the EC

suggest a "more gradual introduction" with a "first re-insurance phase" where

EDIS "could provide only liquidity coverage, and no loss coverage".

     A "last-resort" common fiscal backstop for the Single Resolution Fund is

also brought up again after earlier EU suggestions.

     The backstop could be formed from the transformation of the ESM into a

European Monteary Fund, which was discussed earlier this week at the Eurogroup

meet.

     With the communication and the Luxembourg talks, momentum appears to be

growing on this issue at least - but the long EDIS delays so far prove it may

still be too thorny to sort out before the end-2018 aim.

--MNI Brussels Bureau; +44 203-865-3851; email: tara.oakes@marketnews.com

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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