Addressing the eurozone’s ‘lemons’ problem for NPLs
State-supported securitisation could help restore market function
The large stock of non-performing loans (NPLs) on the balance sheets of eurozone banks continues to be an important cause of concern for policymakers and a priority for the European Central Bank (ECB). In this regard, the publication of the ECB’s guidance to banks on NPLs in March 2017 is an important milestone.1 History has shown that financial crises and/or prolonged economic contractions often trigger abrupt and substantial increases in NPLs, as collateral valuations decrease and borrowers
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