Beyond market failures, regulatory and features of the judicial system, such as structural inefficiencies in debt and collateral enforcement, also contribute to the lack of market turnover. Legal procedures needed to collect a simple claim take too long and cost too much in many euro area countries.
Some of these costs cannot be recognised in the values of NPL, but rather, according to accounting rules, are charged to the general expenses. This discrepancy between economic and book value of NPLs is yet another disincentive to increase supply, especially for those banks that are not sufficiently profitable or that have thin capital cushions (see Chart 7).