Europe seeks new levy on banks to create crisis funds

Michel Barnier, EU Internal Market Commissioner, says that a network of national funds should be put in place so that tax payers don’t have to meet the cost of bank failures. He says that the funds would be part of a larger system to help prevent future financial crises.

Under the scheme, banks would be required to pay a levy into a fund, but it would not be used to bail out failing banks, instead it would be to manage failures in an ‘orderly way’.

Mr Barnier said “”I believe in the ‘polluter pays’ principle. It is not acceptable that taxpayers should continue to bear the heavy cost of rescuing the banking sector. They should not be in the front line,”

He says that future bank failures should be paid for by the financial sector. “That is why I believe that banks should be asked to contribute to a fund designed to manage bank failure, protect financial stability and limit contagion – but which is not a bail-out fund.”

He added: “Europe must take a lead in developing common approaches and providing a model for co-operation which could be applied globally.”

The funds would remain within national borders but there are disagreements about management of the funds. The proposal also states that uninsured creditors and shareholders need to be made aware that the funds would not be used as an insurance policy.

The proposals will be presented to EU Finance Ministers, heads of state and the G20 in June this year and a draft EU law would be proposed early in 2011.