10 February 2009

EU to present guidelines on treatment of impaired assets

The European Union is working on a co-ordinated approach towards banks impaired assets. The Commission is working on various principles to guarantee a fair and transparent evaluation of assets and will publish a proposal within the next two weeks.

The European Union is working on a co-ordinated approach towards banks impaired assets. A document to be prepared in the next few weeks will set out the guidelines and a framework on buying up impaired assets.

 

ECOFIN endorsed the formulation of common principles concerning a consistent approach to valuing assets, sharing risks and minimising moral hazard while maintaining a degree of flexibility in the choice of measures (insurance, handover of assets or a combination of both), the assets and institutions selected. There is also a need to ensure full transparency of the schemes.

 

Commissioner Almunia outlined that these guidelines will present common principles but also a certain degree of flexibility for the differing situations in the member states. This will allow some member states to create so-called bad banks, while other countries such as the UK and the Netherlands may use other mechanisms such as the insurance of assets or some hybrid mechanisms.

 

Common principles and clear guidance for the evaluation of assets are needed, Almunia said. Clear guidance is also essential on the questions which assets are eligible for these schemes, he said, as they will not only consider the toxic assets but also other assets that are impaired and will need to receive this relief treatment.

 

The Commission, together with the EFC are working on various principles to guarantee a fair and transparent evaluation of assets. A decision is to be published possibly already within the next two weeks.

 

The document to be published will set out which assets will be eligible for the schemes, the conditionality for banks that will receive support, and the restructuring – if needed, Commissioner Almunia explained.

 

Ministers agreed on the need for a common and coordinated approach and agreed to the following principles:

Ø       A correct and consistent approach of valuation is of key importance to maintain a level playing field;

Ø       Banks benefiting from such schemes should keep a portion of the risk and some specific conditions related to management may have to be included to limit moral hazard;

Ø       While there should be some flexibility concerning the choice of assets selected, full transparency should be ensured;

Ø       Close monitoring of the implementation of such measures would be essential.

 

Council press release

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