MILAN (Reuters Breakingviews) - The European Central Bank may have pushed its bad-loan cleanup too fast. The institution proposed stricter rules governing banks’ provisions for non-performing loans but overstepped its authority, the EU parliament’s legal service says, according to Reuters. The ECB is right to target European lenders’ 840 billion euro mountain of bad debt, but its clumsy move may end up slowing down its effort.

That’s a blow for ECB supervisory tsar Daniele Nuoy. The strict new guidelines for bad debt she unveiled on Oct. 4 could now become bogged down in a legal fight. The proposals, the legal opinion says, amounted to a new set of binding pan-European rules for lenders – the domain of EU lawmakers, not the ECB. The central bank can only issue recommendations to individual banks.

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Resurgent economic growth in countries such as Italy, whose banks hold 175 billion euros of EU NPLs, presents an opportunity to take bolder steps to address the problem while times are good. The ECB has suggested that new rickety loans should be completely written off within a maximum of seven years, and not sit on the banks’ books indefinitely. Italy, for one, fears its lenders will not be able to do it with comfort that quickly.

In fairness, the ECB move looked a tad cheeky. For a start, it was hidden in an addendum to existing guidelines. And its “comply or explain” approach would make it difficult for banks to deviate from the standard line without being perceived as financially weak. With an eye on the central bank’s proposals, investors have already picked out lenders that look vulnerable like Italy’s Banco BPM and UBI Banca, whose shares dropped sharply in the days after the ECB proposal was unveiled.

If the European Parliament, where Italian politicians hold key positions, prevails the ECB’s overall drive to repair bank balance sheets could suffer. It’s a case of more haste, less speed.

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