February 13, 2017 / 6:38 PM / 6 months ago

Top watchdog makes urgent call for EU bad bank

Chairperson of European Banking Authority (EBA) Andrea Enria attends a debate with the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium September 26, 2016.Yves Herman

FRANKFURT (Reuters) - A pan-European "bad bank" is urgently needed, the head of Europe's banking regulator said on Monday, after Germany last month dismissed his proposal to tackle soured loans.

The ratio of non-performing loans to total loans in European banks is 5.4 percent, about three times higher than other major regions, European Banking Authority (EBA) Chairman Andrea Enria said in an interview with German newspaper Handelsblatt.

"The good news is that the ratio is coming down, but the decrease is extremely slow. There is an urgent need for policy action," Enria was quoted as saying.

The EBA said last month that the European Union should create a publicly-funded asset management company to take on some of the trillion euros of bad loans that have become a brake on economic growth.

But a government official in Germany said that the bloc's largest economy saw no benefit in such a move.

Germany has long opposed plans to share bank risks, fearing its taxpayers would end up paying for bank rescues in other countries. Enria told Handelsblatt that under his plan each country would still be responsible for loans that have to be written off.

"The whole structure is designed to avoid any form of mutualisation of losses or sharing of risks," he said. "Any state aid that might be necessary would be addressed exclusively at the national level."

If no agreement is possible on a common authority, then the EU should at least have common rules for existing national authorities charged with winding down bad loans, Enria said.

"At a minimum, it would be important to define common European blueprints for national asset management companies," he told the paper.

Reporting by Maria Sheahan; Editing by Alexander Smith

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