On Wednesday 31 October, the ambassadors of the member states to the EU (Coreper) reached a political agreement in principle on the proposed regulation to introduce common minimum loss coverage thresholds for bank loans that become non-performing (non-performing exposures or NPE) following the entry into force of the future rules (see EUROPE 11981).
Readers may recall that last week, a qualified-majority agreement of the member states was noted on the basis of a compromise proposal by the Austrian Presidency of the Council, but the delegations agreed to examine a last-minute Italian suggestion (see EUROPE 12126). The subject might have been put before the European finance ministers at the 'Ecofin' Council (see other article) if no agreement had been reached on Wednesday.
The final point to be resolved concerned non-performing loans backed by immovable collateral. The Austrian Presidency tabled two options to determine the gradual level of coverage required for this category of loans, whilst Italy proposed a third, further clarifying the rules.
The text adopted is ultimately very close to the Italian proposal, a European source told us.
The compromise text provides for a gradual increase of the minimum loss coverage level for non-performing loans backed by immovable collateral over a period of nine years. One of the main changes compared to the Italian proposal, which provided for 80% coverage for the sixth, seventh and eighth years, is that the compromise text rises to 85% for the eighth year, before reaching 100% in the ninth year.
Overall, the Council's position is less restrictive than the Commission's initial proposal and gives the member states more time to comply with these new requirements, the same source explained.
The new rules will make it possible to “increase banks' resilience to adverse shocks by facilitating private risk-sharing, while at the same time reducing the need for public risk-sharing”, the institution announced in a press release. (Original version in French by Marion Fontana)