Together with national regulators and the
But it's tricky. Forcing banks to fix their problems could temporarily destabilise financial markets and cost investors and governments more money.
"The object is, no more doubts about European banks," said ECB vice president
At the height of their debt crisis in 2012, European leaders decided to create a centralised supervisor to oversee banks. The idea was to take regulation away from national officials, who can be overly protective of their domestic financial institutions. They gave the job to the ECB, which now needs a clean slate in the banking industry before its supervisory board takes over the function in November.
Asked about the danger that the ECB might take it too easy on the banks, Constancio said: "We will uphold the reputation of the ECB, we will not put it at risk, and we cannot put it at risk."
Because so many banks are still in financial trouble, they are not able to lend much to businesses and households. That's preventing the economy from growing and reducing unemployment from a painful 12 per cent. For instance, a bank that has made loans that aren't being repaid may extend the loan or otherwise take it easy on a struggling borrower in hopes they'll eventually pay. But that practice means the bank may not have money to make new loans.
In particular, it is small and medium-sized companies that can't get the credit they need. Yet it's those companies that provide some 80 per cent of the jobs. Bad loans are a particular target. The ECB and EBA say anything that's more than 90 days overdue will be considered a bad loan, whether the bank has declared it in default or not.
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