The European Commission today unveiled plans to levy a new insolvency tax on banks but insisted the proceeds will remain within national borders and will not be used to bail out failed banks.
'The funds would not be used for bailing out or rescuing banks, but only to ensure that a bank's failure is managed in an orderly way and does not destabilise the financial system,' a Commission statement said.
Under the commission's plan, which has still to be agreed by the 27 European Union member countries and the European parliament, the proceeds could be used to make bridging loans to financial institutions deemed to be still 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. According to European Commission chief Jose Manuel Barroso, the fund should be obligatory.
EU Financial Services Commissioner Michel Barnier said that 'it is not acceptable that taxpayers should continue to bear the heavy cost of rescuing the banking sector.'
Barnier said that a 'polluter pays' principle was needed 'to build a system which ensures that the financial sector will pay the cost of banking crises in the future.'
He said the funds would 'manage bank failure, protect financial stability and limit contagion,' but stressed there would be no bail-outs.
With the plans deliberately left open for discussion, however, some fear the goal eventually will be to create an EU-level fund.
In the immediate aftermath of the 2008 global financial crisis, there were calls to reform the banking system, especially to tighten up regulation and prevent a repetition of the excessive risk-taking blamed for the debacle.
Since then, however, the drive for reform has slowed in the face of strong resistance by the major banks and financial markets, with some countries such as the US and Britain seen as favouring less regulation.
Today's proposal, which will be presented for consideration next month to EU finance ministers and G20 leaders at their summit, is part of the commission's new post-downturn 'crisis management framework'.
