European banks face more tax payer protection regulations

A
network of national funds should be introduced so the cost of bank failures are
not met by the taxpayer, the EU internal market commissioner has said.

Michel
Barnier said such funds would provide part of a broader system aimed at
preventing future financial crises.

Banks
would be required to pay a levy into the funds which would not be used to bail
out failing banks, but 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
said.

And
the EU report said that any levies that banks were made to pay should not be
passed on to their customers in the form of higher charges.

Mr
Barnier said the financial sector should pay the cost of banking crises in
future.

“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.”

Rather
than seeking to impose a pan-European fund the EU is backing a “harmonised
set of powers and rules” which would allow regulators in each country to
take measures to deal with insolvent banks.

The
proceeds of funds would remain within national borders, but there are some
national disagreements about whether the money should go into a special ring
fenced fund or wider national coffers. 

The
commission said that at this stage it was not its intention to provide precise
details about how bank resolution funds would be expected to operate, or how
large they would need to be.

Its
proposals will be presented to EU finance ministers, heads of state, and the
G20 in June 2010.

A
draft EU law would be proposed in early 2011, which would need European
Parliament approval.

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