ECB’s De Guindos: Too early for discussion about European bad bank

In an interview with ABC newspaper, conducted on June 9 and published on Sunday, European Central Bank (ECB) Vice President Luis de Guindos said its too premature to discuss the possibility of creating a European bad bank to deal with risky debt, per Bloomberg.

Key quotes

“The ECB has not taken any decision or entered into any discussion about the possibility of creating a bad bank at the European level.”

“It is too early for this discussion at the moment.”

Spain’s banking sector is “currently not giving cause for concern.”

“Provisions will increase, there will be a rise in the number of defaults and non-performing loans, and this will affect the profit and loss account, further reducing the bottom line.” 

“Consolidation in the banking industry could help lower costs and increase the efficiency of certain lenders.”

This comes after Reuters reported some sources last week, citing that the ECB officials are reportedly drafting a plan to deal with potentially hundreds of billions of euros of unpaid loans in the wake of the coronavirus outbreak.

However, the European Commission was quick to note that “no formal work is underway on a European Union (EU) bad bank.” 

Market reaction

EUR/USD remains under pressure in early Asia, trading below 1.1250 amid resurgent broad US dollar demand, as the risk sentiment sours on the intensifying fears over the second wave of coronavirus.

At the press time, the spot drops 0.10% to trade at 1.1241, having hit a daily low of 1.1227.