Against the background of (i) a significant amount of banks in the euro area with sizable NPL stocks, (ii) MREL shortages in banks with a traditional funding model reliant on depositors and/or elevated stocks of NPLs, (iii) the perceived ‘return’ of the bank-sovereign nexus, and (iv) low levels of banks' profitability, amid fintech challenges, European authorities must seize the opportunity to review the existing regulatory and crisis management framework in a coordinated fashion with a full-information approach instead of each devising their own set of rules.
To the extent that the system was favouring the use of the income trust structure in these cases, the incentives for innovation and investment were reduced, and the potential for future productivity growth was reduced. Finally, members of the Committee should realize that the different risk-return characteristics of income trusts may not enhance market completeness if they arise from differences in tax treatment.