Barnier backs funds for failing banks
Michel Barnier, the European commissioner for the internal market, is to push for all member states to set up ‘resolution funds’ to finance the winding up of failed banks, though the idea received only a mixed reception at an informal meeting of EU finance ministers in Madrid on 16-17 April.
Barnier wants the funds to be part of a ‘crisis management and resolution’ framework that would prevent taxpayers having to bail out financial institutions. The funds would be financed by banks, through a form of tax or levy.
“We need to have a good crisis management framework in place and we believe at this stage that this would include [resolution] funds,” a spokesperson for Barnier said after the meeting.
Member states disagree about the attractiveness of the idea. Some, including the UK, France and Austria, fear that banks could be encouraged to take risks if they know that emergency funds are available. They would prefer money from levies or taxes to be paid directly into national budgets. The Netherlands and Finland also support the introduction of levies, but have yet to take a firm position on resolution funds.
The only supporters of resolution funds are Sweden, which set one up last year, and Germany, which plans to do so. The Swedish resolution fund is paid for by a levy on bank liabilities.
Member states are also split over how any tax or levy should be applied. Some member states, including the UK and France, support a tax on financial transactions. But at the informal Ecofin this was opposed by Finland and Sweden, as well as by Jean-Claude Trichet, the president of the European Central Bank.
Governments also differ over whether any such fee should be imposed on the banking sector as a whole, or on specific parts, such as investment banks.
Barnier plans to propose a common EU approach for the funds in a policy paper in June. He told ministers that his proposals would include pooling money from resolution funds to deal with cross-border bank failures. Barnier said he recognised that this idea was “sensitive”, and would require further discussion.
Other elements of Barnier’s proposed crisis co-operation framework include legal reforms so that shareholders and unsecured creditors, rather than taxpayers, bear the brunt of financial costs associated with bank failures – an idea sometimes referred to as a ‘polluter pays’ principle – and reforms so that regulators can make “early interventions” into failing banks. Barnier plans to flesh out these plans in a policy paper in October.
“[Failing] banks must be able to be reorganised or liquidated in an orderly and foreseeable way,” Barnier told ministers. “This presupposes a co-ordination at European level.”
He said that European co-ordination in this area, coupled with reforms to financial supervision, would reduce the need to impose high capital requirements on banks.
Barnier’s spokesperson said that the commissioner was “extremely pleased” at the outcome of the meeting. “Clearly there are complicated issues and a resolution fund is one of them,” she said.
“There was a very large support on the key points – the need for a global and integrated approach.”
Olli Rehn, the European commissioner for economic and monetary affairs, said that he had won “broad support” at the Madrid meeting for a proposal to enhance budgetary surveillance between member states.
Rehn said that he would present a formal proposal on 12 May for the establishment of a “European semester of economic policy-making”, stretching from January to July, during which draft budgets would be evaluated by the European Commission and finance ministers prior to being sent to national parliaments.
“That could, and most likely should, lead to recommendations to the member states to take remedial action,” Rehn said.
Both Rehn and Elena Salgado, Spain’s finance minister, emphasised that the Commission’s plans stopped short of having EU-level votes on whether to authorise draft budgets.
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