Eurozone authorities should create a an electronic platform to trade "non-performing" loans weighing down the single currency area's banks, the Europeean Central Bank urged Monday "Market failures" are hobbling trade in debt in or close to default in the 19-nation currency zone, ECB economists found in a paper, with a too-small number of buyers pushing down prices and numbers of transactions.
Currently just 67 investors are active in buying so-called "NPLs". A high proportion of bad debt in the banking system can hold banks back from lending to financially healthy businesses and households, hobbling economic growth. Eurozone banks hold around 921 billion euros ($1.1 trillion) of NPLs, or 6.1 percent of the total amount of debt on their books.
But over the past three years, only 200 billion euros of bad debt have been traded, ECB vice-president Vitor Constancio said in February. Creating an electronic system to share data and trade NPLs would attract more buyers by creating more transparency and reducing transaction costs, the economists argue. Tax incentives could prod banks to use the platform, they add, while authorities would only need to remove a small number of hurdles for electronic trading and data-sharing to become feasible.
Economics and finance ministers from the EU's 28 member countries in July called on the European Commission, the ECB and the European Banking Authority to lay down the standards on data about NPLs needed for electronic trading platforms to work.