Europe Is Only Halfway To Healthier Banks

Last week, the European Commission and the European Central Bank announced new rules on how banks should treat dud loans. The good news is that the changes will help make European banks more resilient in the future. The bad news is that the euro zone banking system remains insufficiently equipped to deal with a new crisis.

European banks are still struggling with the aftermath of the financial crisis and the ensuing recession. Unlike their U.S. rivals, many European lenders chose not to sufficiently write down their non-performing loans, since this would have required raising significant amounts of new capital. The U.S. banks took a different route: They tackled the problem head on, helped by the Troubled Asset Relief Program (TARP) whereby the government spent more than $400 billion to stabilize the financial system.