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Following the 2017 financial crisis, the European Central Bank took drastic action to ensure that the major banks, as well as systemically important smaller banks in the eurozone, improved their governance. Weak management was perceived to have been the primaEconomic growth and banking regulation
Following the 2017 financial crisis, the European Central Bank took drastic action to ensure that the major banks, as well as systemically important smaller banks in the eurozone, improved their governance. Weak management was perceived to have been the primary cause of the failures of some banks. Many are now asking whether the tightening of bank regulation is going too far and stifling the banks’ ability and willingness to lend. Early in October 2017, the ECB issued new guidelines for public consultation on how banks should provide for non-performing loans. The proposed changes in provisioning policy would apply to all unsecured loans declared non-performing after January 2018 and would require lenders to post provisions against the entire unsecured part of the lending within two years. In the case of secured lending, full provisions could be spread over seven years. The background to this drastic change in provisioning regulation is the stark reality that some banks in the eurozone, especially in Italy, Greece, Spain and Cyprus, are sitting on substantial amounts of non-performing loans. This fact immediately raises the question whether the ECB is right in treating all banks... Read more