The paper focuses on the restructuring of troubled banks in the Eurozone. First, we review how legacy assets (mostly NPLs) were dealt in various countries (especially Japan, USA, Sweden and Spain), supporting a centralized solution in case of generalized banking crises. Second, drawing on the credit channel literature, it stresses the need to differentiate between systemic and non-systemic events. Third, it theoretically advocates a systematic centralised Eurozone level approach to maintain fair recovery rates of restructuring banks’ NPLs. The paper contributes to the lively debate on how to reinvigorate the EU banking system and thus avoid the related negative macroeconomic consequences.

This material was originally published in a paper provided at the request of the Committee on Economic and Monetary Affairs of the European Parliament and commissioned by the Directorate-General for Internal Policies of the Union and supervised by its Economic Governance Support Unit (EGOV). The opinions expressed in this document are the sole responsibility of the authors and do not necessarily represent the official position of the European Parliament. The original paper is available on the European Parliament’s webpage. © European Union, 2017

Download pdf