European approach to toxic assets must be stricter

The European Parliament approved an agreement on Wednesday to tackle European problem loans, the so-called toxic assets, further. MEP Ralph Packet calls the new rules a step in the right direction, but he thinks they could have gone even further. “Toxic assets are first and foremost a Southern European problem. Two months ago, the Italian government had to intervene again to support the ailing Banca Carige. The timing of these new rules therefore could not be better, even though they could definitely become much tighter.”

Tackling problem loans early

The new rules oblige banks to set aside enough of their own funds at the moment when new loans are no longer being paid off. This is intended to ensure that problem loans are tackled at an early stage. “Certain Italian banks are in danger of going under due to sky-high toxic assets. That remains the case today. That’s why I think it’s a shame that the rules are only intended for new loans. The existing problem loans therefore remain untouched. Nevertheless, this compromise text is a first step in the right direction,” Ralph Packet says.

European banking union

The new legislation is part of a series of European actions in which tackling toxic assets is recognised as a priority. In addition, the Commission has long had its eye on a European deposit insurance system as the final pillar of the European banking union. “Tackling toxic assets is an important condition for strengthening the banking union. Before we can discuss ideas such as a European deposit insurance fund, the risks must first be lowered. Our banks and citizens may not cough up for the financial mismanagement in the south. First, responsibility, only then, solidarity. Not the other way round,” Ralph Packet concludes.