Banks will never again be allowed to call on taxpayers to clean up their mess under plans for a new Europe-wide crisis insurance levy unveiled on Wednesday.
“What I’m proposing is logical — banks paying for banks, not taxpayers,” said the European Union’s financial services commissioner, former French foreign minister Michel Barnier. He was speaking after setting out his vision of a new tax he wants each of the bloc’s 27 member countries to impose — not to raise sunken ships, but to plug leaky hulls before they go down.
Barnier stressed that the levy would operate at national level but did not exclude the possibility that monies collected in one territory could one day be accessed by banks in trouble in another. “We’re going to have to look closely into this question,” he said when asked about growing foreign ownership across national banking markets, having earlier pointed out that “in half of all European countries, half of their banks are owned by groups from other countries.”
British Bankers Association chief executive Angela Knight is roundly opposed to a pan-European outcome. “Why should the banks in one country pay for the problems of banks in another,” she asked. More generally, she also asked: “How could a large sum of money sitting dormant somewhere in Europe make economic sense?”
Barnier stressed that what is on the table is “not a European, federal fund (but a) … pragmatic and realistic” course of action to follow today. “Prevention is better than cure — and it’s always cheaper,” Barnier said, citing the vast cost to European governments — some 13 percent of economic output — to bail out banks since the financial crisis broke in late 2008.
He insisted that the tax plans would create “a fund for prevention, not for bailouts.” However, Barnier refused to say how much banks would be required to pay into the European ‘resolution’ fund. “I can’t put a figure on it, we need to have those discussions across the sector,” he said, aiming to have detailed legislative proposals to put to countries and the European parliament by “the start of next year.”
Sweden introduced a new 0.036 percent levy on banks’ final balance sheets in 2009 and has tabled formal EU proposals to see its scheme matched across the bloc. In Germany, a fund running to one billion euros each year, paid into by banks there, is also being prepared.
Under the commission’s plan, the proceeds of the tax could be used to make bridging loans to financial institutions deemed to be viable. The funds could also be used to help banks get rid of bad assets and offer legal and administrative help to banks that have to close down. Europe is due to have a new system of financial supervision and regulation in place on January 1, 2011, separately covering banks, insurers and financial markets, although arguments have raged for months within EU member states and at the European parliament.
Last week, EU finance ministers agreed the need for “strict” new curbs on the trillion-dollar hedge fund industry, despite stiff resistance from British finance minister George Osborne. In July, Barnier said he will also propose ideas to regulate complex derivatives markets, with a coordinated European approach to short-selling and Credit Default Swaps, both of which have been blamed for exacerbating Europe’s debt crisis.
Brussels, May 26, 2010 (AFP)