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ECB prepares 'bad bank' for wave of toxic debt - sources

Video Credit: Reuters Studio - Duration: 01:22s - Published
ECB prepares 'bad bank' for wave of toxic debt - sources

ECB prepares 'bad bank' for wave of toxic debt - sources

Reuters sources say the ECB is preparing a 'bad bank' to cope with the expected wave of unpaid debts sparked by the economic crisis.

Julian Satterthwaite reports.

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The ECB is preparing a so-called ‘bad bank’ to mop up an expected wave of toxic debt.

That’s according to Reuters sources.

The move comes as the central bank anticipates hundreds of billions of euros in unpaid loans.

Bank President Christine Lagarde has reportedly spoken to commercial lenders and EU officials about the plan.

Earlier in June she was clear about the scale of the economic challenge: "The June euro systems staff macro economic projections see growth declining at an unprecedented pace in the second quarter of this year.” The ECB has declined to comment on reports it plans a bad bank.

But economists expect some kind of action.

Around half a trillion euros of debt is expected to go unpaid in the euro zone - and some estimates say that could yet double.

Such a huge pile of bad debt would weigh on already fragile banks, and limit their ability to lend.

That could then worsen an economic slowdown.

Any euro zone-wide scheme will require the blessing of Germany though.

It has long opposed sharing responsibility for other countries’ debts.

But it recently had a change of heart, agreeing to pool EU borrowing for a recovery fund.




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