Is This the Silver Bullet for Italy's Bad Loan Problem?

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The answer to cleaning up bad loans still weighing down Italian banks may lie in a controversial proposal that would allow lenders to sell their debt at deep discounts without being forced to hold more capital, Bloomberg News reported. European Parliament lawmaker Peter Simon, who’s leading the assembly’s work on updating prudential rules for the region’s banks, wants to make it easier to sell debt cheaply without having to adjust a calculation known as loss given default, which typically hurts banks’ capital ratios. Opponents of the change say it may let lenders off too easily and penalize the ones that have already reduced much of their bad-debt pile under existing rules. The main beneficiaries could be second-tier Italian lenders like BPER Banca SpA that haven’t yet wound down or sold as much bad debt as larger competitors UniCredit SpA and Intesa Sanpaolo SpA. BPER may be able to accelerate soured loan sales if the rules are softened, according to Chief Executive Officer Alessandro Vandelli. Read more.