In the coming weeks the European Commission and the Single Supervisory Mechanism will finalize their proposals for writing down non-performing loans over time (calendar provisioning). In its proposal the Commission suggests introducing minimum, or Pillar 1, requirements that all EU banks will have to meet.
That put forward by the Single Supervisory Mechanism, instead, sets supervisors’ expectations for the NPL coverage ratio under a Pillar 2 approach. A reduction in NPLs is necessary to lower banks’ risks and funding costs. This should be pursued through measures that take into account the starting conditions, are sustainable, and do not have potentially destabilizing procyclical effects.