- Europe plans to set up an Amazon-style marketplace that sells bad debt worth billions of euros in a challenge to big buyers on Wall Street, according to Reuters.
- The proposal would challenge dominant Wall Street debt investors, but has not been signed yet.
- European Central Bank officials plan to discuss the scheme on Friday, the news agency said.
- “The idea is to open up the market to buyers of smaller portfolios, with an Amazon or eBay-style marketplace, where you can browse… That can get the market moving,” Edward O’Brien, a senior ECB official, told Reuters.
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Europe’s central bank plans to set up an Amazon-style platform to sell billions of euros in bad debt in an effort to shore up its distressed economy, Reuters reported on Wednesday.
The move would challenge the dominance of big Wall Street debt investors, and is targeted at those running smaller portfolios.
Through the marketplace, European Central Bank officials intend to sort out a big jump in bad loans within the region’s coronavirus-hit economy by blocking “distressed debt” funds from buying them cheaply.
“The idea is to open up the market to buyers of smaller portfolios, with an Amazon or eBay-style marketplace, where you can browse… That can get the market moving,” Edward O’Brien, a senior bank official, told Reuters.
After the 2008 financial crisis, bargain-hunting investors grabbed the opportunity to invest in distressed loans worth billions of euros, thereby accumulating properties that have appreciated in value ever since.
“The market for bad loans has been dominated by a few very large buyers. In a typical scenario, one of these firms may buy a very large portfolio at steep discounts,” O’Brien told Reuters.
Loan disposals by banks have risen every year in the last decade to clean up balance sheets and offload bad debts to investment firms that invest in distressed assets.
The ECB’s proposal for the new marketplace has not been signed as yet, Reuters said. It will be discussed with officials on Friday.
If the 19-member eurozone agrees to the plan, the digital platform could come under the authority of the Single Resolution Board, a European Union agency based in Brussels that finances banks facing difficulties, Reuters reported.
Another ECB official, John Fell, told Reuters that the bad debt presents a wider challenge. “The problem is bad loans is too often understood to be one that is limited to banks. But it is far wider, it affects the whole economy,” he said.