vitor constancio : we need a coordinated european npl strategy. how to deal with europe ’ s market for lemons? opinion piece by mr vitor constancio, vice - president of the european central bank, 5 july 2017. * * * one of the most pressing issues for euro area banks is the nearly €1 trillion of non - performing loans ( npls ) on their balance sheets. while the average euro area npl ratio has declined gradually from a peak of 8 % in 2013, it still remains at 6 % and differences across countries are marked : six countries still have npl ratios of more than 10 %, significantly more in some cases. this is not just a problem for banks. the flip side of npls is over - indebtedness among households and firms, and this poses a macroeconomic challenge – banks restrict credit supply and distressed firms curtail investment, which in turn hampers economic growth. asset quality issues were exacerbated by the global financial crisis. when the crisis hit, the surge in npls blocked the ability of many banks to deal with distressed debt. npl resolution, though not a panacea for all banking problems, could bring significant benefits. it is not easy to estimate the effects of resolving npls. however, scenario - based analysis indicates that replacing npls with performing assets could increase the aggregate return on equity of euro area banks by more than 1 percentage point, with some countries ’ banking sectors gaining up to 5 percentage points. it is therefore essential to find a solution to the npl problem, but we must recognise that it will take time and no single instrument is likely to be a “ magic bullet ”. rather, it will require a comprehensive strategy involving a panoply of instruments. the ecb is already working on this and has issued clear guidance to the banks it directly supervises. but supervisory action is not enough on its own. the private sector and national and european authorities also have roles to play. several significant impediments affect the prices of npls, to varying degrees across euro area countries. the market for distressed debt can be characterised as a “ market for lemons ”. this is a situation where investors demand a premium to protect themselves from the uncertainty that better - informed banks will try to sell them assets whose credit quality is worse than it may seem on the surface. this results in limited market activity, as the prices that investors are prepared to pay for npls are much lower

sabine lautenschlager : cross - border banking since the crisis – lessons for supervisors statement by ms sabine lautenschlager, member of the executive board of the european central bank, at the 10 years vienna initiative - anniversary conference 2019, vienna, 27 march 2019. * * * the crisis has shown that the banking sector is deeply interconnected worldwide, and that a banking crisis can quickly spread from one country to another. it also laid bare a number of weaknesses in the global regulatory framework. but after long and tough negotiations, we agreed on the basel iii framework, which addresses most of the weaknesses found in global regulation. it will help make global financial markets safer by ensuring that global banks and banks with cross - border activities have to comply with a common framework of minimum capital, liquidity and risk management standards. the crisis clearly showed that supervision should not stop at national borders. and it also showed us that cooperation between home and host supervisors is key to understanding the risks banks are exposed to when doing business across borders. in recent years, cooperation between supervisors has increased significantly, on the back of new global and european standards for home / host cooperation. cooperation between supervisors has become natural ; in fact, it has become essential. this cooperation has been institutionalised via supervisory colleges and crisis management groups. standards now apply when information is exchanged between host and home supervisors, and when joint fact findings and assessments are due. and various criteria now apply when supervisors from different countries have to agree on joint action regarding banks. of course, it is easier to cooperate in theory than in practice. and it is easier to cooperate in normal times than in times of crisis. the vienna initiative was an important example of cooperation in crisis times. and with the vienna initiative 2. 0 in particular, we have seen how important it is to provide structures and platforms for home / host cooperation. it is undeniable that, in times of crisis, the interests of home and host supervisors may diverge. but without cooperation, it would be very difficult to maintain financial stability. breaking this kind of prisoner ’ s dilemma requires trust. but trust cannot be built over a few days of talks at the height of a crisis. trust requires us to understand each other ’ s priorities and constraints. and this takes time. in a way, this should be seen as an investment. as a supervisor, you should invest your time in building trust with other authorities. it will pay off. in practice, the fact that this lesson has