A new survey has shown that European banks are stalling on unloading loans, instead waiting for them to expire at their own pace. New regulations, which oblige banks to cut their loan portfolios and trading positions so that they can put up more of their own money for every dollar they lend, will not be satisfied for another five years or even more, which is not in line with the expectations of the International Monetary Fund (IMF).
Reuters reported Thursday that the survey from Deloitte indicates substantial cost tied to the delay: it prolongs the shortage of credit for both individuals and businesses, thereby boosting the risk of investment and spending cutbacks that will in their turn impede economic recovery.
The survey of banks representing 11 trillion euros ($14.19 trillion) in assets also found that nearly 75% of respondents said that cutting the amount of debt on their balance sheets will probably take more than five years. That’s longer than the duration of previous banking crises.
The IMF expects them to move a lot faster than that. In its October Global Financial Stability Report, the IMF said that European banks are likely to shed $2.8 trillion in assets—more than 7% of total assets—over two years. Not so, said the Deloitte report, which found instead that deleveraging will be “surprisingly modest” and involve less than 7.5% of total assets over five years.