Summary of Risk Reduction Through Europe’s Distressed Debt Market

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Europe has only begun to deal with its distressed debt problem, and it needs to do more, according to economist Alexander Lehmann in this technical but highly accessible analysis. He posits that Europe’s fledgling secondary market for loans currently has systemic imperfections that severely limit investor demand. Lehmann proposes that regulators and investors collaborate to make the divestment process more efficient and transparent. getAbstract recommends this astute synopsis to bankers, investors and regulators.

About the Author

Alexander Lehmann is a nonresident fellow at Bruegel, a European think tank.

 

Summary

Nonperforming loans (NPLs) have cast a long shadow across European banks. Traditionally, in the desire to retain client relationships, banks have handled problematic debt of their own origination through in-house restructurings. But today, financial executives are coming to grips with the need to write down a substantial volume of moribund claims: The 2018 value of NPLs in the euro zone equals roughly 8.8% of GDP. European Central Bank (ECB) guidelines support the creation of a strong secondary-market solution. And lenders recognize the demand for greater transparency, lower entry hurdles for investors, harmonized...


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