EU Authorities Raise Concerns About Proposed Data Waiver For Non-Performing Loans

On June 1, 2018, the European Banking Authority and the European Central Bank wrote to the European Commission, the European Parliament and the Council of the European Union expressing concerns about the impact of proposed data waivers for non-performing loans. The letter refers to a proposal put forward by certain stakeholders, in particular the Bank of Italy, that losses due to the sale of NPLs should be permanently eliminated from the dataset used for the Loss Given Default (LGD) estimation for the firm disposing of the NPLs. The proposal is based on the belief by some stakeholders that the disposal of NPLs and the corresponding capital release is hindered by the regulatory framework for internal models, in particular the requirements in the Capital Requirements Regulation for LGD estimation.