EU banks offer voluntary rescue fund

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European Banking Federation President Alessandro Profumo yesterday (12 July) offered to set up a voluntary €20 billion rescue fund for failing banks funded by the top 20 EU credit institutions. Although the move follows Brussels' push in this direction, the European Commission reacted warily to his announcement.

Profumo's plan aims to satisfy Brussels' requests to avoid making taxpayers foot the bill for rescuing failing banks, as they were forced to do during the last US-born financial crisis, the widespread consequences of which are still being felt by European economies and households.

In exchange for his offer, Profumo hopes to prevent banks from being forced to establish compulsory privately-funded rescue funds, as originally proposed by EU Internal Market Commissioner Michel Barnier.

Profumo, who is CEO of Italian group UniCredit – one of the biggest cross-border banks in Europe, with sizeable operations in Germany and many Eastern European countries – launched his idea in the pages of the Financial Times.

His proposals carry more weight since he is currently also president of the influential European Banking Federation (EBF), which brings together all the major banks in Europe.

According to his plan, the top 20 European cross-border banks would voluntarily set up a €20 billion fund to help each other when necessary, thus avoiding the need to request help from public authorities, as many banks have been forced to do recently.

His offer represents a surprising compromise, since EU-wide consensus on the issue is far from certain (see 'Background').

Confirming the controversial nature of his approach to the dossier, top German banks reacted in a lukewarm manner to Profumo's proposals, according to sources quoted by news wires.

Barnier wary

German banks were not the only ones to react warily to Profumo's offer.

EU Internal Market Commissioner Michel Barnier, who has reignited the debate on a bank levy in recent months, welcomed the move but underlined that the fund "should not be exclusive".

His spokesperson clarified Barnier's point of view. "We do not have in mind any particular voluntary scheme. What we have in mind is something where all banks contribute," spokeswoman Chantal Hughes told EURACTIV.

Moreover, Brussels has already made clear that establishing national rescue funds would be more feasible than a unique EU-wide fund.

Despite underlining the differences between his and Profumo's approaches, Barnier hailed the relevance of the initiative and did not refrain from attacking those member states which are still opposed to his own plans.

"I find it encouraging that Profumo considers the fund to be useful, and even more so as some ministers keep considering such initiatives to be useless," Barnier said in Brussels yesterday (12 July).

Bank stress tests

The bank rescue fund debate is of particular significance at the moment, as EU economic ministers are gathering in Brussels (12-13 July) to discuss common methodologies to carry out stress tests of EU banks. Their plans are set to be published on 23 July.

No clear measures have been adopted yet to cope with the possible need for re-capitalisation, which might become necessary for some banks following the publication of the stress tests (EURACTIV 12/07/10).

To prevent taxpayers from footing the bill for bailing out collapsing banks, the European Commission proposed in May that banks set up "preventive" funds, primarily financed from their liabilities and possibly their profits (EURACTIV 26/05/10).

The Commission's proposal is based on the so-called 'polluter pays' principle. It is designed to establish "a system which ensures that the financial sector will pay the cost of banking crises in the future," according to the EU commissioner responsible for financial services, Michel Barnier.

However, the proposal is not supported by all EU member states, some of which fear that Europe's banking sector could suffer from facing an extra financial burden, putting their international competitors in an advantageous position.

Indeed, the last G20 summit in Toronto at the end of June confirmed that there is strong opposition to setting up such a fund at global level.

  • Oct. 2010: Commission expected to publish communication on crisis prevention management.
  • Beginning of 2011: Brussels plans to present legislative proposal on bank rescue funds.

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