FRANKFURT Governments could help euro zone banks reduce their huge bad debt holdings by backing so-called bad banks that could purchase non-performing loans, European Central Bank Vice President Vitor Constancio said on Wednesday.
As the euro zone's market for bad debt is small and illiquid, bad banks or asset management companies (AMC) could correct market failures by buying loans at their long-term economic value instead of their relatively depressed market value, Constancio said in Rome.
"There is one common feature in this type of AMC: state support," Constancio said. "By putting capital and funding guarantees at stake, governments can signal their commitment to structural reforms and bring forward the related benefits."
(Reporting by Balazs Koranyi; Editing by Hugh Lawson)