Hence, in order to be eligible for a common deposit insurance, banks in the euro area have to either fully provision for non-performing loans or divest them. Non-performing loans not only constitute an obstacle to a common deposit insurance scheme. They also weigh on financing conditions and, ultimately, growth prospects in the member states concerned. Banks need to clear up existing non-performing loans.
In a downturn, these buffers reduce the risk of bank failure or deleveraging, and can be cut to support the supply of credit to the economy. The single borrower-based instrument we have is the LVR restrictions. In our view, a debt-to-income (DTI) tool would be a useful addition to our macroprudential toolkit.