Thorsten Beck
The Covid-19 pandemic will leave deep scars across the globe, particularly in the euro area. Given that the health of banking systems is inextricably tied to the performance of the underlying economies, the non-performing loans (NPLs) of banks are an important issue. What are the policy options to safeguard the integrity and functionality of the banking system? And what are the criteria defining the desired response? This column will address these questions in the context of the EU.
What makes the identification of a suitable policy response particularly difficult is the strong reliance on banks and the apparent ‘overbanking’ in Europe (Pagano et al. 2014). At the national level, banking markets are highly concentrated, and many institutions are considered too-big-to-fail. The structurally low profitability of European banking makes this even more of a concern.
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