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The unfolding of the financial crisis in parts of Europe has highlighted a number of challenges which can be analysed through the prism of NPLs. These included the discrepancies across supervisory regimes, the limitations of macro-prudential supervision and the diversity of NPL resolution approaches.

The authors review policy lessons from the crisis in dealing with the NPL problem.

The paper highlights some key recommendations – the need for intrusive supervision, strong macro-financial surveillance and NPL resolution approaches that provide the right incentives.

These recommendations can help inform the current debate regarding regulatory and structural initiatives to tackle NPLs.