Bank Wind-Down Levies Can’t Be Syphoned Off, EU Lawmakers SayJim Brunsden
National bank levies to pay for winding down failing lenders may not be syphoned off automatically to other European Union states in a crisis, after EU lawmakers said countries shouldn’t expect cross-border help.
The European Parliament is set to scrap any requirement for cross-border lending between so-called bank resolution funds, Gunnar Hoekmark, the legislator in charge of the assembly’s work on dossier, said in an interview with Bloomberg News.
“There is broad support for the idea that there should be no compulsory cross-border lending,” Hoekmark said. “It will be a voluntary matter.” Mandatory cooperation between national funds “is not desirable as it would undermine the responsibility of each member state,” Hoekmark said.
The setting up of resolution funds is part of a broader legal push by the Michel Barnier, the EU’s financial services chief, to take taxpayers off the hook for rescuing crisis-hit banks. EU nations have provided as much as 4.6 trillion euros ($6.1 trillion) of capital injections, guarantees and other support to lenders since 2008, in a bid to prevent a meltdown of the financial system following the collapse of Lehman Brothers Holdings Inc.
Under Barnier’s plan, nations would be expected to set up bank-financed funds that would be tapped to cover the costs of restructuring or winding down failing lenders. The funds would have resources equivalent to 1 percent of state-insured bank deposits in that country.
Barnier proposed that, should a national fund be depleted in a crisis, it could as a last resort request aid from similar facilities in other EU nations. The request could only be refused if it would use up more than half of another national resolution fund’s resources, or render it unable to cope with a crisis on its own territory.
Barnier’s draft law would also empower regulators to impose losses on failing banks’ creditors.
EU leaders in December handed finance ministers and the European Parliament a June 2013 deadline for reaching a deal on the law.
Barnier has said that the setting up of bank resolution funds is a building block toward more ambitious plans by the 17-nation euro area to create a “single resolution mechanism” for handling banking crises. He told finance ministers this week that he hopes to present legal proposals for setting up this mechanism “before the summer.”
The idea of forcing national funds to lend to each other has been criticized by some governments, including the U.K., Germany and Sweden. The U.K. is opposed to setting up a pre-financed bank resolution fund at all.
It is “very likely” that governments “will not agree that such a fund should be used cross-border,” Wolf Klinz, a member of the parliament’s Liberal group working on the proposals, told legislators this week.