Brussels, 19/04/2010 (Agence Europe) - Speaking after a meeting of European finance ministers in Madrid on Saturday 17 April, EU Economic and Monetary Affairs Commissioner Olli Rehn said that there was broad support for the European Commission's proposals on financial crisis prevention, management and resolution (see EUROPE 10119). He was speaking on behalf of EU Internal Market Commissioner Michel Barnier, who had to leave the meeting early due to the air traffic problems caused by the clouds of volcanic dust from Iceland blocking Northern European airspace. The idea of taxing the banks to set up a fund to avert future financial crises is gaining ground but much still needs to be done before any new legislation is unveiled in 2011. Issues like the scope, timing and destination of any member states' emergency bailout funds needed to be sorted out, explained Rehn.
The acting chair of the ECOFIN Council, Elena Salgado, explained that the finance ministers had agreed: - on the need to find coherent, joined-up solutions, “at least” at EU level;- that the future system to prevent and manage financial crisis should complements the financial supervision and capital requirements rules (see related article);- on the importance of reducing the moral hazard of banks and financial bodies becoming too-big-to-fail and having to be bailed out irrespective of their behaviour. She did not, however, say that they had agreed that taxpayers should not have to bail out the banks. Salgado mentioned differences in opinion among national central bankers and European finance ministers, the former focussing on prevention and the latter on setting up bailout funds to intervene when a crisis occurs. Spanish banking has done rather well out of the crisis because of its savings guarantee fund, added Salgado, but she noted that the guarantee fund was not designed to prevent crises.
The Commission has suggested setting up a network of national bailout funds, set up before crises occur, that would be wholly funded by the private sector. A levy would be made on the riskiest assets reflecting the importance of the bank in question to the overall financial system. In the event of a cross-border bank (with assets in more than one country) needing to be bailed out, harmonised national bailout funds would require agreement from the member states in question about the sharing of the financial burden. The European Commission suggests that supervisors be provided with a range of measures to enable them to intervene in a crisis, like setting an upper limit on a bank's exposure to risk from a single counterpart, drawing up stress tests and restructuring plans, banning certain products and deals, restricting the transfer of assets from, for example, a subsidiary to company headquarters, the power to transfer bad bank assets, banning the distribution of capital, replacing failing bank directors, and hair cuts on certain debtors. The Commission also suggests considering ways of ensuring convergence among national bankruptcy laws in order to encourage the orderly and speedy breakup of failed cross-border banks. It will publish two reports this year - one in June on bailout funds and one in October on broad EU crisis prevention, management and resolution guidelines.
In a press release, the European Bank Federation says it will sternly oppose the introduction of new tax mechanisms because this would duplicate the changes currently under way in the Basel Committee regulations on bank capital requirements and would not strengthen financial stability in any way. (M.B./transl.fl)