5 September - Conference Summary
This is a summary of the interventions made by the participants to the Conference. The
analyses and opinions expressed do not necessarily reflect those of Banco de Portugal or the
Eurosystem.
Session 1
Financing the recovery in Europe: How to resolve the post-crisis EU banking
sector fragmentation
Banks and Credit
The discussion focused on one central issue: how to ensure that the EU banking system has the right conditions
to finance the recovery of the European economy. This requires understanding, first and foremost, of how
binding are lending constraints in an environment of persistently subdued demand for loans. Evidence suggests
a large heterogeneity among firms in terms of access to finance: while larger firms are increasingly able to
issue debt in markets, SMEs might be facing some challenges in access to funding. This should be especially
worrying in countries where foreign banks are shutting down operations and domestic banks are weak.
However, it was noted that tight supply does not entirely explain the recent evolution of credit aggregates.
Against this background, it was discussed a possible role for fiscal instruments in fostering loan demand, for
the countries that have room to do so.
It is not entirely clear what should be the role of the banking sector in financing the recovery. Some
participants highlighted that the pre-crisis financial system might be considered “overbanked”, i.e., banks
were by far the main providers of funds to the real economy. This was visible in very large banking sector
assets as a percentage of national GDP, in an environment in which it was easy to borrow. During the global
financial crisis, there was a remarkable deleveraging of European banks, most notably in countries under
stress. There is a generalized consensus that the European banking system will hardly go back to its pre-crisis
dimension. Market financing will likely play a more dominant role, especially for medium and large firms (this
issue was debated in more detail in the following two sessions). Tighter banking regulation should be
contributing to the shrinkage of the banking sector, to an increase in funding costs, and to the emergence of a
larger shadow banking sector (the risks underlying this issue were discussed in session 2).
Financial Fragmentation
The process of financial integration in the EU was disrupted during the global financial crisis and
fragmentation is now a key concern. The so-called financial trilemma in the EU was discussed: how to
reconcile integration, financial stability and sovereignty? Does one of these dimensions need to lag behind?
Banks have a key role in resuming the process of financial integration, as they can be the vehicles for a more
balanced cross-border allocation of savings. This could be achieved not only through lending, but also through
equity and foreign direct investment. Indeed, much of the pre-crisis integration was done through interbank
lending, rather than through effective integration. Further, more work is needed in the harmonization of
several dimensions of the legal frameworks, such as in mortgage contracts or bankruptcy codes.
Recovery
Two very different paths of recovery were discussed: US vs. Japan. In the US, banks were forced to quickly
raise capital (not capital ratios) and to clean their loan books by writing-off large volumes of non-performing
loans. This was implemented in an environment of non-contractionary fiscal policy. In contrast, Japan has
lived through the so-called lost decade(s) with the survival of insolvent banks and firms. EU banks, in a way
like Japanese banks, did not raise capital considerably and a large part of the deleveraging witnessed during
the last few years has been implemented through shrinkage of assets. EU banks continue to be highly
leveraged when compared to their US banks. In a debt overhang scenario there are few incentives for banks to
raise equity, as the benefits accrue mainly to bondholders and insured deposits. In turn, banks might prefer to
invest in assets that pay off in the good state of nature. This may entail keeping insolvent firms alive and/or
investing in domestic sovereign debt. This practice generates the risk of feedback loops between banks and
sovereigns. Another key difference between the EU and the US is that the Treasury and the Fed were fast in
starting to buy assets, thereby reducing debt overhang and fostering a healthier alignment of incentives. In
turn, the ECB is injecting large amounts of liquidity in the economy, forcing a decrease in funding costs. It was
referred that this does not directly address the debt overhang problem; it might even worsen it. A final
important difference to bear mind is that banks play a much larger role in financial intermediation in Europe
than in the US. Against this background, an abrupt adjustment of banks’ balance sheets in Europe may entail
larger costs than in the US.
With all these problems in mind, the discussion focused on policy actions to ensure that banks may be key
actors in the recovery of the European economy:

There is a consensus that it is pivotal to clean up bank balance sheets. This requires recognizing losses
(possibly creating bad banks or asset management companies), allowing fast liquidations of unviable
firms, and injecting fresh capital. The alternative would be to follow the Japanese track, ignoring losses,
keeping unviable firms and banks artificially alive through liquidity provision and not offering the
incentives for raising equity. Going forward, it was mentioned that adjustments may have to be made in
the supervisory framework.

Equity is needed not only for banks, but also for firms. This requires setting up the necessary incentives,
such as mitigating the tax benefits of debt or promoting debt-equity swaps.

Fostering securitization and access to capital markets is also important. Though this view gathers a
generalized consensus, it was also noted that there is no evidence that a market-based financial system
is associated with a higher level of development than a bank-based system. Still, there is evidence that
the reliance on short term debt increases the likelihood of crises.

The banking union is a key pillar in promoting integration in Europe. However, this requires not only a
common supervision, but also common deposit insurance and resolution tools.
Summing up, a key dimension of the debate was focused on understanding which factors may be blocking the
financing of the economic recovery in Europe. Three main obstacles could be considered: lack of (good
quality) credit demand, supply restrictions motivated by capital constraints or supply restrictions motivated by
liquidity scarcity. The abundant liquidity provided by the ECB rules out the third possibility. Regarding capital
constraints, it is unavoidable to address the debt overhang of banks and to ensure that their loan books are
cleaned, with the AQR being an important step in this direction. Finally, the lack of credit demand by good
quality firms raises broader issues, with far reaching implications, related with competitiveness, innovation
and investment. Fiscal policy may play a role in this domain, for instance by providing incentives to raise
equity or to promote investment and innovation.
Session 2
From a Banking Union to a Financial Union
Banking sector and banking union
There is ample evidence that the banking sector is much larger in the EU than in the US or Japan. In
particular, interbank assets and liabilities have a much higher weight in European banks’ balance sheet than in
US or Japanese banks’. Theoretical work suggests that interbank markets allow risk sharing within the banking
system. The importance of making cross country comparisons of banking systems’ size in net terms and not
only on a gross basis was also stressed.
One important issue raised and extensively discussed was related to the differences in the growth of the
banking sector across EU countries and to what extent they were associated with the developments in real
estate prices. The direction of causality is however not obvious. Even thought real estate is a massive asset
class with real implications, it was acknowledged that very little is known about its price dynamics. More
research on this subject is clearly needed, especially in Europe, as these assets do not behave according to the
models generally used in macroeconomics. Important aspects highlighted were the huge volatility and the
large serial correlation of these prices. Moreover, the high volatility of real estate prices has implications for
the sustainability of private sector indebtedness. The sustainable level of private sector indebtedness is hard
to determine and varies not only across countries but also over time. However, it was referred that there is
evidence of some clustering at around 100% of GDP in advanced economies but at much lower levels in
emerging market economies.
Regarding the banking union, it was acknowledged that it is about 2/3 complete. The main aim is to break the
sovereign/banks link, making all banks alike independently of their location. The importance of cross-border
banks was reiterated in this context. If there are no cross-border banks, idiosyncratic risks associated with
location will remain significant. Even if these banks are bigger, they may imply lower risks. The importance of
making the interbank market dependent only on the bank´s risk was also stressed.
Non-banking sector
Evidence shows that there are significant differences in the size of the non-bank sector relative to the bank
sector as well as in the structure of the non-bank sector across countries. The discussion centered on different
forms of non-banking financing and their perceived advantages/disadvantages compared to a more bank-based
system.
Regarding shadow banking, it was mentioned that the size of shadow banks relative to traditional banks in the
euro area is less than a third than in the US (less than a sixth, if we exclude the Netherlands). The question of
whether this smaller relative size of shadow banking in the euro area represents a problem was raised. In fact,
the purpose of this market should be the efficient provision of credit intermediation services given that
ultimately what is important is how the real economy has access to credit. Shadow banks are similar to regular
banks in several ways, e.g. both issue short-term liabilities and invest in long-term assets (maturity
transformation). However, shadow banks are inherently more fragile (less stable funding sources) and are also
exposed to runs. Therefore, a key component of the “efficient provision of intermediation services” is what to
do when an institution fails. From the discussion, the main conclusion was that shadow banking institutions are
not necessarily a more stable source of funding than banks.
The existence of a role for securitization was amply discussed, in particular in the context of banks’ reduced
lending and deleveraging needs. European issuance in securitization markets has remained muted and
continues to be mostly retained by banks. A major culprit mentioned was the regulatory framework for issuers
and investors. A call was made for a more supportive European legal framework for ABS markets, which would
reduce uncertainty to all market participants, along with an instrumental support from the European
Investment Bank. One participant highlighted that a functional ABS market in Europe is crucial to provide a
bridge between those collecting savings (i.e., institutional investors) and those who lend to the real economy
(i.e. banks). Some recent initiatives aiming at supporting a viable EU securitization market were referred,
with emphasis on the ECB’s recently announced ABS purchase program. Regarding this program, it was
acknowledged that if the ECB buys just senior ABS tranches, it will limit the impact of the program and it will
not translate into banks capital relief. Doubts were raised about government guarantees on junior tranches,
with a participant pointing that they could even reinforce fragmentation. In the end, the issue comes back to
having some form of mutualisation. It was also mentioned that securitization may not be attractive unless
banks can construct ABS based on SMEs loans spread across countries (core and periphery) so as to compensate
for correlated risk.
Banking finance vs. non-banking finance
There was general agreement about the existence of trade-offs in banking vs. non-banking finance. Higher
availability of market based financing was not seen as necessarily delivering better results than a bank-based
financial system.
Regarding the triggering of financial crises, the recent experiences related to the burst of real estate bubbles
showed that it does not matter whether the boom was financed by the market (like in the US) or by banks
(like in Spain). But for other types of crises, the experience is limited and more research is needed. In terms
of risks to welfare, banks seem to have an advantage at intertemporal smoothing of risk over capital markets.
Also, wealth invested in stocks and other financial markets is much more volatile than wealth invested in
banks. On the contrary, financial markets tend to be better at providing finance to new and innovative firms,
e.g. through venture capital and private equity. It was recalled that new firms tend to contribute significantly
to job creation. Notwithstanding, it was acknowledged that little is known about the relationship between
firm dynamics/entrepreneurship and access to finance, especially in Europe.
Session 3
The Financing capacity of non-financial corporations and the recovery. What
can Europe learn from the US?
The recovery
The idea of a jobless recovery in the US and a jobless non-recovery in Europe was conveyed. Overindebtedness was referred as a typical impediment to the recovery along with references to the fact that
large increases in debt in the run-up to crises are associated with worse economic outcomes, sharper rises in
unemployment and sharper increases in lending rates. It was also argued that slow credit growth in Europe
was maybe not the result of a market failure but instead of a re-pricing of risk, or, maybe available credit is
just right for the quality of existing firms. On this point, it was referred that the insistence on the need to
finance the recovery risks becoming the promotion to financing the non-recovery. The argument was that in a
market economy resources need to be reallocated, but with over-leverage and the incentives banks have to
evergreening, there are risks to policies that promote credit growth.
Financing sources US vs. Europe
Several participants expressed the view that Europe can expand the role of debt markets in the financial
system. US banks expanded capacity by increasing access to uninsured deposits, by attracting nonbanks into
lending and investors (finance companies, investment management firms, private equity firms) into buying
banks’ credits.
But, as one participant put it, perhaps European firms have less access to market finance just because they
are smaller; and they are smaller because of stricter regulation. This view contrasted with the supply side that
is typically emphasized. Still, US data shows that, all less equal, borrowers less dependent on bank lending
fared better. Also, firms with continuous access to nonbank markets also raise funds from banks at better
terms. Besides securitization (see below) it was referred that there is room to fuelling the secondary loan
market, while availability of other sources of funding (e.g., commercial paper, bond markets) can ease credit
tightness.
It was also referred that public credit policies come to mind when markets do not step in with the warning
that while it is true that recoveries without credit are slower, it is important to be reluctant regarding public
interventions, as they have the potential to create problems on their own, through erosion of lending
discipline. It is thus important to monitor these policies. Alternative and simpler policies are available, e.g.,
trying to move towards equity financing by altering the tax incentives that create the debt bias.
Securitization
Securitization was also discussed in this session. It was referred that a more balanced financial system can be
achieved by promoting the securitization of corporate loans, but that securitization is not a panacea. While US
corporate loans securitized prior to 2005-2006 were not problematic (mortgage loans were), problems did
arise in those securitizations made immediately before the crisis. Therefore, the skin in the game rule must be
guaranteed, even if the size of the skin can be discussed. There is always potential for a dark side in
securitization, while the limits to securitization were also highlighted in view of informational restrictions
(e.g., for very small firms).
It was referred that there are large investors (pension funds, sovereign funds) interested in Europe. But a
puzzle was manifested as to whether securitization is now being seen as a monetary policy tool or something
more structural (requiring also involvement of the European Commission, European Parliament, regulators
etc., and not just the ECB). Additionally, frustration was expressed on the reference to some form of public
guarantees (by the European Commission, the EIB, the ESM?).
The announced ECB intervention in the ABS market (September 4, 2014) was seen by one participant as a
credit easing measure, aimed at resolving the impairments in monetary policy transmission by providing
funding relief for banks, making deleveraging smoother and, importantly, by changing the relative
attractiveness of household vs. corporate loans, as the main financing constraints are observed in the
corporate sector. The same observations lead to the TLTROs, inspired in the funding for lending program of
the BoE. ABS and covered bonds programs were seen as complementary to TLTRO, contributing to more
diversified credit markets, to firms less dependent on bank lending, allowing banks to transfer risk, to lower
capital consumption and therefore to lend more. The need to set clear criteria to define high quality, more
transparent ABS, in order to avoid repetition of past episodes of systemic risk was also highlighted. Obstacles
in terms of regulation have also been pointed out, including for insurance companies. The question of whether
ECB intervention will succeed in reducing spreads for firms, as did early FED interventions, was also raised.
Information and credit markets
Some emphasis was put on the need to promote the disclosure of information on firms in order to reduce
information asymmetries, with references to the usefulness of credit registries, managed by public
authorities; also, privacy legislation could be adapted so as to allow platforms where lenders have access also
to historical data on firms; a similar role for private companies, that can maybe do a better job at screening
firms while inducing competition in the provision of information, was also referred.
Corporate debt restructuring
There was reference to insufficiencies in several national insolvency regimes to adequately handle viable but
over-indebted firms. There was a call to reform these regimes, towards less complexity and lower costs. It
was also referred that in-court procedures are unviable given the number of troubled firms; instead, there was
mention to the desirability of crafting out-of-court procedures as well as the development of standardized
restructuring modalities. Impediments on new money should also be addressed; authorities should look at
other sources of fresh money, such as government sponsored credit lines, but with great caution.
Concern was expressed on the temptation to save firms at all costs, with reference to the Japanese
experience. It was pointed out that overleveraging is also often a reality in the US, with the difference being
that Chapter 11 leads to a fast restructuring in most cases; this was contrasted with the uncertainty and
diversion of resources (including human capital) faced by firms, sometimes for years, in several countries.
Some participants expressed the view that once restructuring procedures start, it’s already too late, although
good legislation and a good judicial system can act as a bargaining chip useful to prevent socially undesirable
outcomes.
The role of private equity in the restructuring of viable firms was extensively discussed. Examples were given
on how private equity took opportunities given by the crisis, by acting as a mediator between firms (whose
owners resist outside intervention and have, when in trouble, a call option out of the money) and the often
many and uncoordinated banks that try to guarantee their loans are repaid. The screening of viable firms, the
coordination process, and the restructuring process itself were referred as tasks that banks are unable to
perform whereas a specialized third party can while reducing the potentially high transaction costs (related to
the many banks involved and to the diversion of resources firms devote to the process). It was referred that
the involvement of public funds is often desirable, if managed by private firms. Finally, there was reference
to mezzanine funding (convertible debt) as an alternative source of funding for companies unable to tap bank
loans.
In order for private equity to intervene by buying credits before it’s too late (and also to reduce bid ask
spreads), but also for financial stability considerations, it was seen as important to have supervisors
preventing banks from engaging in evergreening. It was seen as desirable that banks be capable of detecting
and analyzing these troubled firms, although some skepticism was raised regarding the capacity of banks to
perform this task.
In contrast to private equity, there was reference to credit mediation in France, where the central bank brings
together banks to broker a deal. Given the acquired expertise of the central bank, this was mentioned as a
quite efficient way to deal with large numbers of SMEs.
Other reforms
It was mentioned that further developments in capital markets and corporate bond markets perhaps justify
legal reforms; references were made to the desirability of public-private infrastructure and promotional
banks; calls for labor market reform were also made as a way to promote the recovery.
6 September - Workshop Summary
This is a summary of the interventions made by the participants to the Conference. The
analyses and opinions expressed do not necessarily reflect those of Banco de Portugal or the
Eurosystem.
Session 1
Securitization
Given the European financial and capital market architecture, banks are expected to have a key role in
promoting the economic recovery. However, the pressure faced by European banks to deleverage and
strengthen their solvency and liquidity positions creates important challenges to a bank-based recovery
process. Securitisation may be the technical solution that squares the circle by allowing banks to reshape their
balance sheets, replacing “old loans” by profitable new loans.
It was mentioned that securitisation is not the silver bullet but it can be seen as the seed instrument to
reshape the European economy funding, whereby long-term investors are given a more important role in the
funding of the real economy, while maintaining the customers/banks relationship.
ECB’s ABS purchase programme (ABSPP)
The recent ECB announcement regarding the launch of an ABS purchase programme (ABSPP) was widely seen
has a game changer in the reactivation of the ABS market. There was a consensus among participants that this
announcement is quite positive to reduce the stigma coming from the aftermath of the financial crisis and it
contributes decisively to put securitisation in the policy agenda. It was underlined the importance to include
mezzanine tranches in the ABSPP, as it is the most effective way to allow capital relief for originators.
However, the calibration of this programme has to take into account several aspects in order to be successful:

the minimum rating requirement should be the one that allows the participation of banks from every
Member State – one participant mentioned that the credit constraints were more severe in some
countries than others, and because of it, reactivating the European ABS market is mainly necessary in
Spain, Italy , France and Portugal

the entity providing the guarantees should be a supranational institution in order to de-link the sovereign
risk from the ABS risk – on the contrary, a national guarantee would only increase the risk of further
fragmentation of the euro zone capital market;

the mezzanine guarantee price that will be charged to the originators should be minimal. Several
participants addressed this issue, highlighting the difficulties in determining the price of a guarantee, in
a zero-yield environment, in a way not to jeopardize the economic deal. In this context, it was
mentioned that the methodology used to calculate this cost should not be the same one that was applied
to the Government Guarantee Bank Bonds. It was also mentioned that, taking into account the different
levels of credit enhancement in securitisations across Europe, if a supranational guarantee scheme is
available for the whole European Union, that would contribute to promote the level playing field and
would diminish any market distortions.
It was also mentioned that work on the ECB ABSPP should be consistent with the work being developed by the
European regulators (in particular by EBA that is currently defining “Qualifying Securitisations”).
Economic deal of securitisation in a zero-yield environment
As a funding source, securitisation ranks badly vis-à-vis other more favorable funding sources alternatives
(ECB, covered bonds). There was a consensus that the capital relief has to compensate for this higher funding
cost. Herein lies the importance of the existence of a guarantee scheme to help originators achieving a
significant risk transfer at an affordable price. Furthermore, a guarantee scheme for the ABS market might
help overcome the rating caps imposed by the credit rating agencies. Nevertheless, there was one view
concerned about the “market addiction” on guarantees.
In this vein, the possible involvement of a supranational institution like the EIB/EIF group was welcomed. The
need for an open approach by European Commission in their State Aid analysis was also mentioned, as the
regulatory uncertainty is driving away investors.
The EIB/EIF role as a supranational institution
It was stated that EIF is a “AAA” institution that grants guarantees to ABS only supported by SME loans. EIF
believes that in the current very low yield environment ABS have to be structured to allow the release of
capital.
It was mentioned that the SME ABS market suffers from low levels of new credit production, high levels of
defaults, heterogeneity of loans characteristics, and lack of a common credit risk assessment tool. Against this
background, some participants challenged the design of the EIF guarantees, which are targeted at SME ABS,
and suggested that that the same guarantees could be granted to RMBS, as long as the proceeds are channeled
exclusively to grant new credit to SME (though this is very hard to enforce and to monitor).
Other participant mentioned that the heterogeneity of SME loans constitutes an obstacle to achieve
scale/dimension. On top of this, SME loans from one jurisdiction bears the synchronized risk of economic
performance of the Member State and therefore urges the need to design a pan-European solution to collect
loan produced by several banks (preferably from different jurisdictions). In this avenue it was discussed if the
EIB/EIF group could play an active role.
Regulatory changes
A sound and prudent ABS market needs to work both as a funding source and as a capital relief tool. In this
context, it was mentioned that the EBA has been working on a discussion paper requested by the European
Commission on the definition of securitizations which are considered simple, standard and transparent. These
criteria should be equal across the insurance, banking and financial sectors. On top of this, there is a set of
credit risk criteria that must be met in order to achieve the label of “Qualifying Securitisation”, thereby
leading to the possibility of having lower capital requirements.
It was mentioned that the ratio between the sum of the capital requirements for the noteholders of each
tranche of the ABS structure and the capital requirements for the underlying assets’ credit risk demanded to
the originator could be as large as 4 times in some jurisdictions. The reason for this high multiplier effect is
the sovereign risk and the underlying assumptions of the credit risk, which relies on external ratings from
credit rating agencies. This factor should be revisited and recalibrated in a way that lowers capital
requirements which are considered too high given the quality of the underlying assets.
The securitisation roadmap developed by the Financial Service Committee was briefly mentioned since some
participants expressed concern about the need to achieve a high degree of consistency between the different
initiatives and frameworks. Overall, with the new and positive policy view toward securitisation, it seems that
regulatory uncertainty is losing ground.
Credit Rating Agencies (CRA)
The methodologies applied by CRA to ABS are also impending the correct functioning of the market. It was
stressed that CRA have a very conservative approach when assessing the credit risk of the underlying assets,
especially the SME loans. One reason could be that CRA do not trust individual loan data provided by the
originators so that they apply rating caps, thereby linking the sovereign risk to the ABS risk.
According to one participant, CRA may not be properly assessing the risks involved in a securitisation. In this
context, additional transparency on loans, the existence of reliable credit registers or credit score systems
were mentioned as instruments that could help the CRA to understand better the European ABS risk profile or
even to support new incumbents in the business of assessing credit risk. In this vein, it was mentioned that the
EIF does its own due diligence by analyzing probabilities of default and recovery rates of the underlying loans.
Session 2
Corporate debt Restructuring
Given the imbalances that were build up before the crisis in some European countries, the level of
indebtedness in the non-financial corporate sector is so high that a holistic policy response to address
corporate sector weaknesses, and, in particular, to promote the restructuring of the corporate sector debt, is
crucial to address debt overhang, especially in the current context of low growth and low inflation.
National concern or a European approach
There was some discussion over the most appropriate way to approach the problem of corporate overindebtedness, and whether it would be useful (or necessary) a European approach in order to, among other
objectives, harmonize the insolvency legal environment and out-of-court procedures. Furthermore, it was
referred that banks play a crucial role in this process (regardless of the recent trend towards a wider
diversification of financial intermediaries and instruments), and as most banks have cross-border operations,
the incentives given by national authorities and supranational organizations should also be harmonized or, at
least, articulated.
Viable vs non viable corporations
One of the issues unanimously identified as crucial for the debt restructuring process was the identification of
viable corporations and, most importantly, corporations in financial distress that, if given certain conditions
and support, could be (or become) viable. There was also a generalized agreement regarding the complexity
of such identification: it is partly exogenous to the corporation; it depends on the quality of the management
team; the financial indicators are clearly insufficient; the group structures are complex; and it is forward
looking so it naturally entails a degree of imprecision. This heterogeneity also justifies, in the opinion of some
participants, the difficulties in applying a standardized approach of debt restructuring to SMEs.
It was mentioned that IMF intends to publish a working paper on some of these issues in the course of 2014.
The legal framework
It is necessary a legal framework that recognizes the specificities of these situations, safeguarding the
interests of all stakeholders (shareholders but also financial and non-financial creditors), pari passu presenting
expedite in and out-of-court mechanisms. In this regard it was recognized that much has been done in
Portugal and in other European countries and, although there is room for improvement, in particular in terms
of out-of-court mechanisms, the legal framework is currently not a blocking factor for the corporate debt
restructuring process. Some of the improvements mentioned related to cram-down provisions and equal
treatment of all creditors (public and private).
But it was also stressed that the legal framework is not sufficient per se: the practice is also key at this point;
the legal framework has to be allied with the will to restructure and, in this point, the action of the
supervision bodies and of the government is essential. The debt restructuring procedures are all the more
efficient and effective when guided by previously established rules (the London rules were mentioned in this
point), including the possible definition of triggers that would set off such processes. The coordination across
creditors was also identified as crucial to achieve successful debt restructuring processes when several
creditors (including the State) are involved.
The role of promotional banks
It was mentioned the role that promotional/development banks may play in the restructuring of corporations
as these institutions stand in a strategic stand point, possessing the expertise to support corporations in the
debt restructuring process and the knowledge about national structures.
But it was also mentioned that it is necessary to overcome the stigma around debt restructuring, embracing it
as a way to put viable firms back on the productive path.
The market mechanisms
The current debt levels, the number of corporations affected and the number of financial institutions involved
make up for a situation of sizable magnitude, which renders any market solution insufficient and calls for a
holistic approach, as mentioned before. Some of the workshop participants mentioned that such a systemic
approach would have to include, among other factors, a significant pressure on the banking sector to
stimulate the restructuring or selling of the corporate debt portfolio but also a legal pressure on the debtors’
side to discourage gamble for resurrection and to minimize any possibility of moral hazard.
The Polish restructuring Programme, started in the 1990’s, was mentioned as a case of success; the Spanish
case was also mentioned, with references to the fact that, under certain conditions, debtors can be found
legally liable for the willful bankruptcy of the corporation, as was the Iceland approach that included the
definition of a standard arrangement between banks and debtors. Throughout the discussion several
participants pointed to the blocking power of debtors as a major impediment to corporate debt restructuring.