Schaeuble Seeks to Shield Small Banks From EU Crisis Levy

German Finance Minister Wolfgang Schaeuble pushed the European Union to shield smaller banks from paying too much into a 55 billion-euro ($75 billion) euro-area resolution fund.

Schaeuble urged his fellow European Union finance ministers today to focus on banks’ size and systemic importance as the key measure for determining how much individual lenders should contribute to the fund, amid splits between nations on the right formula for calculating the fees.

Banks that present a minimal risk to financial stability “should pay no or very little levies,” Schaeuble said during a debate today in Luxembourg. “The proportionality of the contribution must be ensured.”

The joint fund, which will be filled over the course of eight years starting in 2016, will be one weapon available to regulators for stabilizing a crisis-hit bank or covering the costs of winding it down. The measure is part of EU legislation agreed on earlier this year to transform how the bloc handles failing banks by centralizing powers.

While the law sets out some basic rules for collecting the levies, including that the formula should include components based on both size and risk, it leaves the details to be worked out by the European Commission.

Fee Calculation

Michel Barnier, the EU’s financial services chief, today began a public consultation on the measure, seeking views on points such as whether the levies should be imposed on individual bank units or their parent companies, whether smaller banks should be “treated in a special way,” and on how to weigh different criteria in the fee calculation.

The levy “is one of the key elements to ensure that the financial sector bears the costs of bank failures, not the taxpayer,” Barnier said. It “must be balanced and reflect the risks of banks with different risks, business models and sizes.”

Schaeuble has lobbied for his country’s smaller lenders to be exempted as far as possible from paying into the common fund, siding with the nation’s savings banks, Germany’s biggest source of credit. The EU law states that all banks must contribute something.

Fair Share

While Germany’s approach has received support from some nations including Spain, France is concerned that the EU shouldn’t focus too narrowly on the risks posed by larger banks, as it argues that this could lead to countries with more consolidated banking industries paying more than their fair share.

Nations are split both over the importance that should be attached to size versus risk, and over which criteria should be used to measure risk itself.

“All the banks covered should contribute to the fund,” said Michel Sapin, France’s finance minister. “The contributions need to be modulated according to the risk of default posed by the bank.”

All banks “benefit from financial stability; accordingly, all banks, no matter what their side, should contribute,” said Michael Noonan, Ireland’s finance minister.

The EU is racing to complete work on the levy rules, as nations warn that they will be unable to ratify the new system until they know how hard their banks will be hit.

Bank Data

Schaeuble and Dutch Finance Minister Jeroen Dijsselbloem said that their parliaments would be unable to ratify until the full facts are known.

Barnier said that he would unveil proposals by September, adding that the timing would be dictated in part by how swiftly governments respond to his requests for bank data.

“We have the European legal framework, we need to put it into effect as soon as possible,” he said.

Other concerns expressed by nations included a push from Sweden that the EU shouldn’t seek to constrain governments that want to impose tougher levies on their banks, and a call from Belgium for further thought on how to handle financial-market infrastructure operators, such as Euroclear, that have banking licenses.

“What matters for us is that the levy on banks is at least partly risk-based,” Benoit Coeure, a member of the ECB’s Executive Board, told reporters before the meeting. “Because it has to provide the right incentives to banks.”