The European Central Bank is planning to ask banks within the euro zone to up the amount of cash on hand to cover non-performing loans, a move meant to help bolster lending in the region.
The proposal, which was released for public consideration yesterday, would give banks two years beginning on January 1st, 2018, to come up with funds that would cover 100% of newly classified non-performing debt, the ECB said yesterday.
Banks would have seven years to come up with the necessary funds to cover all unsecured bad debt, according to the proposal.
Currently, European banks are dealing with bad loans worth about €1 trillion, as stated by a report from Reuters; this amount, left over from Europe’s debt crisis, is hampering lending as well as credit growth within the region.
The hope is that this proposal will clear balance sheets for the banks and kickstart lending, according to the ECB. This kickstart could also have an effect on alternative lenders and fintechs in the region, who might be affected by the proposal.
The ECB will be continuing public consultation on the proposal until December of this year, according to reports.
Read more at Reuters and the Financial Times.