The Basel Committee on Banking Supervisions proposal that only mortgages backed by easily realisable collateral should benefit from low risk-weightings might encourage insolvency regime reform in the EU, says Fitch Ratings.
Mortgage lending represented 22% of total non-defaulted exposures extended by a large sample of EU banks. Timelines for real-estate foreclosure and liquidation vary significantly between EU countries, and even within countries, depending on insolvency proceedings and court efficiency. If banks operating in countries with long timelines were forced to hold more capital against mortgage loans, albeit after an extended transitional period, this might encourage insolvency law reform…
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