New rules for stricter bad-loan schedule

European Union lawmakers and governments on Tuesday reached a political agreement on new rules for the money that banks should set aside against possible losses from new loans that turn sour.

The compromise softens an initial proposal by the European Commission, but less than sought by the EU Parliament, which accepted a stricter provisioning calendar for banks.

The rules are meant to avoid a future buildup of bad loans at banks, which have hampered the EU’s economic recovery after the 2007-2008 financial crisis.

Banks in the EU still hold 731 billion euros of debt they might not be able to recover, according to the European Banking Authority’s latest available data. The problem is worst in Italy, Greece and Cyprus.

“Today’s political agreement is an important step to further reduce risks in the EU banking sector and strengthen its resilience,” the European Commission said in a statement.

The new rules will come into effect after approval by the EU Parliament and EU states in the coming weeks. No changes can be made to the agreed text.

[Reuters]