The European Central Bank (ECB) is considering setting up a so-called “bad bank” to deal with loans that may no longer be repaid due to the coronavirus crisis, according to Reuters.
A bad bank is a corporate structure set up to acquire the bad loans and other high-risk holdings of other financial institutions, allowing the latter to get those assets off its balance sheet.
An ECB bad bank could involve hundreds of billions of euros in loans, the news agency said. The ECB has refused to comment.
The ECB has set up a working group to examine the possibility, according to some sources. The European emergency fund ESM could be involved to guarantee this bad bank, and major European banks could be invited to support the plan.
With this structure, banks could be protected against huge potential losses on loans, such as mortgages, car loans and credit card debt.
ECB President Christine Lagarde is reported to have recently been in contact with EU and banking sector officials about the plan.
The Brussels Times