THE European Union’s banking system has £910BILLION worth of bad debt, an independent regulator has revealed as it lays out emergency plans for a “bad bank” contingency.
The scale of the EU’s banking problem has become “urgent and actionable”, according to Andrea Enria, chairman of the European Banking Authority.
Mr Enria called for a creation of an EU “bad bank” that would buy up the toxic loans from lenders in an attempt to break a financial cycle of falling profits, pressure on lending and struggling economic growth.
With the lack of a proper market for the selling of bad loans, banks have been reluctant to offload them and accept a price below market value.
Mr Enria envisioned the formation of a taxpayer-packed fund to buy the bad loans from struggling lenders at their “real economic value” - a level which would be determined by the fund at a later date.
The proposal is likely to come under fire from opponents of state-funded aid for banks who will view any intervention as a distortion of the market mechanism.
While Mr Enria is the Chairman of the EBA he has no power to introduce such a body.