Europe Mulls Bank Guarantee Tax Plan
The European Commission has come forward with plans to levy a new tax on the region’s banks that is designed to protect EU citizens from further banking failures in the future.
Announcing the proposals on Wednesday (26 May), EU financial services commissioner Michel Barnier said bank insolvencies should no longer come at the expense of the taxpayer after national governments poured billions in public money into ailing firms during the early months of the financial crisis.
«I believe in the ‘polluter pays’ principle,» Mr Barnier told journalists in Brussels, stressing that the new money should not be considered as a bail-out fund.
Instead, the money could be used to make bridging loans, or for the temporary purchase of toxic assets from companies being split into ‘good’ and ’bad’ banks, says the commission ideas paper.
«Europe must take a lead in developing common approaches and providing a model for co-operation that could be applied globally,» added the Frenchman, who took up the EU’s financial reins in February, despite considerable protest from within the UK’s financial sector.
The latest plans are intended to complement a raft of new rules on tighter financial supervision to prevent bank failures happening in first place, with these currently making their way through the EU’s legislative mill.
Many details still need to be filled in however, with EU finance ministers and leaders set to discuss the commission’s communication next month. Initial indications suggest there is general support among member states, with the EU keen to take a united position into the G20 summit in Toronto on 26—27 June.
«Given that bankers are responsible for the crisis, I think it’s very logical that they pay,» Swedish finance minister Anders Borg told EUobserver in a telephone interview after the proposals were announced.
Sweden has been at the forefront of moves to raise a levy on banks, introducing a tax on the country’s firms during the financial crisis. The government charges a uniform tax of 0,036 percent of a bank’s total liabilities, hoping to raise a figure of 2,5 percent of GDP by the year 2015.
Rather than getting into these kinds of details in Wednesday’s document, the EU executive intends to gather the views of member states and the banking sector before coming forward with concrete legislative proposals at the beginning of next year.
Sweden will support the idea that taxes relate to bank liabilities at next month’s finance ministers meeting. «When you get into a crisis it is usually the liabilities that count,» said Mr Borg.
Germany is also pushing ahead with national plans for a bank levy, hoping to raise around €1 billion a year.
No EU-wide fund
The commission shied away from proposing a single EU-wide fund in its communication, instead suggesting a network of national funds. Some fear that the move is only transitionary however.
Speaking in Brussels on Tuesday, the UK’s new business secretary, Vince Cable, warned against a more European-level approach.
«The one major reservation that we have about the proposal as I have seen it is that it seems to suggest that the levy will be paid into a pot at the European level for collecting an insurance fund for future bail-outs. That is not the way we saw the levy operating in London,» said the minister.
Senior banking officials have also cautioned against the commission’s suggestion that firms should provide ex-ante funding into the national resolution funds, saying it could encourage banks to engage in risky behavior.
«A levy on liabilities dressed up as an ex-ante resolution funding is positively dangerous. It institutionalizes moral hazard, will encourage banks to hold riskier asset portfolios [and] creates all sorts of international complications,» said Peter Sands, chief executive of Standard Chartered (SCBFF).
A further flashpoint is the budgetary positioning of monies gathered under a new bank levy. A number of member states have indicated they want to set the funds against national deficits, while the commission believes it should be kept separate.
05/17/2010
— Filed under: Business,Finance
Tags: European Commission, tax
