FRANKFURT The European Central Bank's Vice President called on Friday for the creation of government-backed bad banks to help buy some of the 1 trillion euros in unpaid loans that have weighed on euro zone banks since the financial crisis.
With lenders in Italy and other weaker economies struggling to find buyers for their bad credit, Vitor Constancio called for a European Union "blueprint" for creating asset-management companies (AMC) compliant with EU rules against bailouts.
Less than a week ago, Germany shot down a proposal by the European Banking Authority to create an EU-wide bad bank on the grounds that bad loans are concentrated in just a few countries, such as Italy, Cyprus and Portugal.
"A true European AMC, however, faces difficulties in the present environment," Constancio said at an event in Brussels.
"In more immediate terms, a way forward could be the creation of a European blueprint for AMCs to be used at national level," he added, calling for a "flexible approach" to European rules.
The ECB has been ratcheting up the pressure on banks to offload their soured credit, which it says ties up capital and curbs fresh lending.
But the market for European bank loans has not taken off, with transactions totalling 200 billion euros ($215 billion) in the last three years even after including exposures that are being repaid.
Constancio said there was scope for national governments to step in and fire up that market by injecting capital into banks, guaranteeing securities backed by the non-performing loans (NPLs) -- as Italy is doing -- or even buying some of them.
"Securitisation offers another way through which governments may jump-start the NPL market, for example by co-investing, together with private investors, in junior or mezzanine tranches," he said.
"As with AMCs, of course, such investment would need to be compliant with state aid requirements."
The former governor of the Portuguese central bank added that clearing houses -- which guarantee that a transaction goes through even if one of the parties goes bust -- and a pan-European database could be established to lure investors.
"Clearing houses can be established to reduce the information asymmetry," he said. "Standardised data on individual assets could be stored on a centralised platform at European level."
(Reporting by Francesco Canepa; Editing by Ralph Boulton/Ruth Pitchford)