Why we need to breach the taboos on European banks’ non-performing loans

We propose a comprehensive, pan-European scheme to address the issue of non-performing exposures. We contend that securitisation is the most effective way to sell the bulk of troubled loans because it can rise the transfer price at a level closer to the real economic value, reducing the loss for the banks at bearable levels. Through a numerical example, we describe the main characteristics of a blueprint of securitisation to be implemented at a national level. We argue that this scheme could attract funds from a wide array of investors, while forms of public support can be worked out in terms compatible with the current European rules on state aid.