Tackling Non-Performing Loans Seriously. The Case for an EU Bad Bank

In the aftermath of the Covid-19 pandemic, European banks will likely face an increase in non-performing loans. Due to the high costs involved, the management of non-performing loans is complicated, if not completely impractical. Therefore, public intervention is necessary to avoid further damage to the real economy and instability in the financial system. Nonetheless, national solutions are hampered by the EU regime related to banks’ crisis management. Several proposals aim at rethinking this regime by introducing greater flexibility. These, however, involve numerous political obstacles. A “way out” to overcome this impasse could be the establishment of an EU bad bank.