* Rules may be delayed or shelved altogether
* Decision expected in June
* Euro zone’s bad loans in charts:
By Francesco Canepa and Balazs Koranyi
FRANKFURT/WASHINGTON, April 23 (Reuters) - The European Central Bank is considering shelving planned rules that would have forced bank to set aside more money against their stock of unpaid loans, after suffering a political backlash.
The guidelines, which were expected by March, had been presented as a key plank of the ECB’s plan to bring down a 759 billion euro ($930 billion) pile of soured credit weighing on euro zone banks, particularly in Greece, Portugal and Italy.
The ECB was now considering whether further policies on legacy non-performing loans were necessary “depending on the progress made by individual banks”, a spokeswoman for the central bank said.
She added no decision had been made yet and the next steps were still being evaluated.
Central bank sources told Reuters that if the rules were scrapped, supervisors would look to continue putting pressure on problem banks using existing powers.
The board of the ECB’s Single Supervisory Mechanism (SSM) will discuss the matter at a meeting next month, with a final decision expected in June, one of the sources said.
A clean-up of banks’ balance sheets from toxic assets inherited from the financial crisis is a precondition for getting countries like Germany to agree on a common euro zone insurance on bank deposits.
But the ECB has received push-back on a separate set of guidelines on loans that sour in the future from several members of the European Parliament, particularly from Italy, and lobbyists.
These give banks seven years to provide for new bad loans that are backed by collateral and two for those that aren’t.
The ECB’s original plan envisaged applying similar guidelines to the stock of existing bad loans but this looks increasingly unlikely, the central bank sources said.
Lawmakers had objected that the ECB was encroaching on their prerogatives by passing rules that apply to all banks, rather than working on individual cases.
Eventually, these rules on the so-called “flow” of loans that sour were unveiled in somewhat softened form last month.
But an impact-assessment study by staff in the ECB’s monetary policy arm, which simulated the application of the “flow” rules on the full stock of unpaid loans currently sitting at euro zone banks, highlighted risks to the financial system.
The SSM, which is formally separated from the rest of the ECB, had come up with a more benign outcome by assuming banks would continue reducing their stock of bad loans, as they have done for the past two years.
This has been the result of pressure from the ECB as well as a brisk economic upswing in the euro zone, which has helped borrowers as well as luring buyers for those loans. ($1 = 0.8176 euros) (Editing by Toby Chopra)