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Existing Corporate and Household Insolvency Frameworks: Characteristics, Weaknesses and Necessary Reforms

In: Non-Performing Loans and Resolving Private Sector Insolvency

Author

Listed:
  • Spyros Pagratis

    (Athens University of Economics and Business)

  • Christina Lolou

    (Crowe Horwarth)

  • Nikolaos Vettas

    (Athens University of Economics and Business
    Foundation for Economic & Industrial Research (IOBE)
    Centre for Economic Policy Research (CEPR))

Abstract

The chapter analyzes the characteristics of the Greek insolvency framework, focusing on its weaknesses and the interaction with prudential requirements for banks. This interaction has possibly contributed to the perpetuation of the NPL problem in Greece, discouraging a viable solution to the problem. That was a result of alignment of borrower incentives to apply for restructurings and creditor incentives to restructure overdue debts, regardless of the future debt-servicing capacity of borrowers. Creditor incentives to restructure were driven by the need to economize on bank capital and reduce the capital bill ahead of the large-scale recapitalization of the Greek banking sector. Recent and forthcoming reforms, such as the Capital Requirements Regulation and Directive (CRR/CRD IV), the Bank of Greece Code of Conduct for the non-performing loans’ management and standard IFRS 9 for accounting provisions, could mitigate perverse incentives among borrowers and creditors. That could contribute towards a viable solution to the Greek NPL problem.

Suggested Citation

  • Spyros Pagratis & Christina Lolou & Nikolaos Vettas, 2017. "Existing Corporate and Household Insolvency Frameworks: Characteristics, Weaknesses and Necessary Reforms," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Platon Monokroussos & Christos Gortsos (ed.), Non-Performing Loans and Resolving Private Sector Insolvency, chapter 14, pages 337-362, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-319-50313-4_14
    DOI: 10.1007/978-3-319-50313-4_14
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