Regulatory stress tests are posing a different proposition for banks that in the past only had to meet capital ratios to be free to deal with their nonperforming loans as they saw fit. Now the tests are forcing banks to think about what kind of shape they'll be in during a future crisis and consider reducing their NPL exposure sooner rather than later. "A bank that in the past might have decided to hold on to a portfolio, work it out and reclaim as much cash as possible may now decide the brain damage, hassle and constraints from the regulators mean it is better to just move NPLs off the balance sheet," said the head of credit portfolio management at a U.K. bank.

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