Attention must obviously be paid to potential conflicts of interest and problems of confidentiality. Also, level-playing-field issues among participating banks must be avoided. The design of the balance-sheet assessment must recognize that national accounting and supervisory practices differ radically, especially in the definition and measurement of nonperforming loans (NPLs).
The European Banking Authority (EBA) is working to make definitions uniform across systems and has recently issued a consultation paper on the matter. This is a step in the right direction and should be finalized in time for its results to be used for the BSA. In any case, the BSA requires a de facto harmonization of NPL definitions.