The European Central Bank said it is drawing up “appropriate guidelines” for euro-region nations that want to set up so-called bad banks.
The Frankfurt-based ECB is working with the European Commission on guidelines for "when European countries are utilizing the new schemes that are presently envisaged", possibly a so-called "bad bank" and "guarantees on tail risks", an ECB spokeswoman said.
Governments from Washington to Berlin and The Hague have been examining the creation of bad banks to buy undervalued assets from troubled lenders. Governments want to help banks offload toxic assets that have led to more than $1 trillion in losses at the world's biggest financial companies since the outbreak of the US subprime mortgage crisis in 2007.
EU Economic and Monetary Affairs Commissioner Joaquin Almunia said today that bad banks are a "solution that had very good results in previous financial crises, for example in Sweden."
Such an approach requires bankers and policy makers "to agree on methods of valuing the assets which don't harm taxpayers" and to distinguish properly between different types of assets, he added.
European lenders have suffered almost $300 billion of losses since the onset of the financial crisis. Lawmakers in Germany, Europe's largest economy, favour the creation of individual bad banks that share the lenders' risks with taxpayers.
"That's the proposal in the ascendancy right now," Otto Bernhardt, the ruling Christian Democrats finance spokesman in parliament, said in a recent interview. "The one-size-fits-all 'bad bank' approach won't fly; we need to put the banks back in the driving seat for solving their problems."
The
Wall Street Journalreported last week that the ECB is also setting up standards for governments weighing guarantees of the hard-to-value assets on banks' balance sheets. The ECB has no authority to enforce the guidelines, the newspaper said.
Bloomberg