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This paper discusses policy implications of a potential surge in NPLs due to COVID-19. The study provides an empirical assessment of potential scenarios and draws lessons from previous crises for effective NPL treatment. The paper highlights the importance of early and realistic assessment of loan losses to avoid adverse incentives for banks. Secondary loan markets would help in this process and further facilitate bank resolution as laid down in the BRRD, which should be uphold even in extreme scenarios.
This study looks at potential windfall profits for the four banking acquisitions in 2023. Based on accounting figures, an FT article states that a total of USD 44bn was left on the table. We see accounting figures as a misleading analysis. By estimating marked-based cumulative abnormal returns (CAR), we find positive abnormal returns in all four cases which when made quantifiable, are around half of the FT’s accounting figures. Furthermore, we argue that transparent auctions with enough bidders should be preferred to negotiated bank sales.
This document was provided/prepared by the Economic Governance and EMU Scrutiny Unit at the request of the ECON Committee.