Dutch Challenge German Push to Shield Small Banks From Fees

Dutch finance minister Jeroen Dijsselbloem pushed back against German efforts to shield smaller lenders as European nations wrangled over how to share out the cost of the euro area’s bank resolution fund,

“Excluding small banks for levies, I’m not in favor of that,” Dijsselbloem told reporters on his way into meetings in Brussels. “Some countries have many very small banks. This would mean a large part of the banking industry would not contribute to the resolution fund. I don’t think that’s fair.”

Germany has argued that small, low-risk banks shouldn’t take on additional burdens as euro members debate how to fund the 55 billion-euro ($75 billion) backstop for the banking industry. France, which has a more consolidated finance industry, has pushed to use international standards that won’t hit big lenders too hard.

European Union finance ministers discussed the bank fees as part of their talks today.

The EU’s largest banks will need to pay more and the fee structure needs to include some form of risk weighting, Dijsselbloem said.

“It should be fair and there should not be a disadvantage for Dutch banks,” Dijsselbloem said.

EU authorities are 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. The EU law states that all banks must contribute something.

Fee Clashes

In addition to clashes over whether the fees should be based more on size or on risk, nations are also grappling with how to align the rules with similar national levies that will be imposed on banks outside the euro area, and on how to deal with banks with units in different EU countries.

Finnish Finance Minister Antti Rinne urged at today’s meeting that the rules shouldn’t discriminate against banks because they have units both inside and outside the euro area.

“We should keep in mind that this is single market legislation, we should not make decisions that fragment the single market,” he said.

Rinne was supported by Sweden’s Financial Markets Minister Peter Norman who warned of “regulation arbitrage,” if rules aren’t well coordinated. Sweden is also pushing for guarantees that levies on its banks won’t be used to prop up euro area lenders.

The joint euro area 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.

Basic Rules

While the law sets out some basic rules for collecting the levies, for instance that the formula should take account of both size and risk, it leaves the details to be worked out by the European Commission.

The German approach, which would benefit the savings banks that are the nation’s biggest source of credit, has received support from Spain. France has argued that focusing too narrowly on the risks posed by larger lenders could mean that countries with more consolidated banking industries pay more than their fair share.

Risk should be the “residual component to determine contributions,” to the fund, Spanish Finance Minister Luis De Guindos said after today’s meeting.

Majority Position

“This is Spain’s position, it is a comfortable one that is shared by nearly the majority of countries,” he said.

Michel Barnier, the EU’s financial services chief, has started 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 in June.

Before it's here, it's on the Bloomberg Terminal.