FRANKFURT (Reuters) - European Central Bank supervisor Daniele Nouy defended a plan to require banks to hold bigger provisions against new non-performing loans but highlighted the ECB's flexibility in enforcing the controversial proposal.
The ECB has come under fire in recent weeks, particularly in Italy, for setting blanket rules on how much money banks should set aside for new unpaid loans.
Hoping the defuse the tension, Nouy has already said the proposal may be refined and delayed, although she argued that the move is still seen as necessary.
"We have firm expectations on this, which we have now spelled out," Nouy told a conference in Frankfurt. "But to be clear: what I am talking about here are supervisory expectations."
European lawmakers have criticised the plan because its sets blanket rules for institutions, which they argued was outside the supervisor's power.
But Nouy said the provisioning rules are not binding and that the ECB would exercise case-by-case flexibility, and thus it was within its powers.
"There are no automatic actions attached to them," she said. "Our guidance provides the basis for a structured dialogue with each individual bank," Nouy said.
"Some banks need to do more to address their non performing loan problem," she said. "We need to assess it on a case-by-case basis and find the appropriate solution for each bank."
The guidelines, published as an "addendum" to previous documents, give banks seven years to provide for credit backed by collateral and two years for unsecured debt.
The ECB is also due to draft guidelines by March for existing soured credit, a much bigger issue at about 800 billion euros (£712.5 billion) .