EU eyes private fund to rescue bankrupt banks


The European Commission is considering the establishment of a European emergency fund paid for by the financial sector to rescue failing banks and fend off future crises, EU Internal Market Commissioner Michel Barnier said on Friday (19 March).

Barnier's proposal comes in the midst of discussions on how to deal with possible future banking collapses like that of the Lehman Brothers in the United States.

''Citizens should not have to foot the bill for this,'' Barnier told a Brussels conference on financial crisis management. He said he believes in the 'polluter pays' principle and backs the idea of an EU contingency fund for collapsing banks that is directly paid for by private financial institutions.

Barnier's spokesperson later confirmed that he is in favour of the financial involvement of the banking sector to help prevent future crises. However, this is Barnier's personal view, the spokesperon added, as the subject is yet to be discussed by the college of commissioners.

The Commission is expected to present a communication on the issue in the autumn. Meanwhile, an informal meeting of EU economy and finance ministers (Ecofin) in April will address the matter, officials said.

The banking sector offered a mixed reaction to Barnier's suggestion. ''As president of the European Banking Federation I am against, but as CEO of Unicredit I support it,'' said Alessandro Profumo, who holds both positions.

Profumo's comments reveal internal divisions within the European Banking Federation, where all of the top EU cross-border financial institutions are represented.

International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn declared his full support and went even further by suggesting the creation of a new EU authority.

''I believe we need a European Resolution Authority, provided with the mandate and instruments to manage the failure of cross-border banks,'' he said, speaking at the conference alongside Barnier.

Instead of disputing the role of this or that national authority in the event of the collapse of a cross-border financial institution, Strauss-Kahn said the problem should be solved at its roots.

''The banking system should be pre-funded by the industry itself, through a mix of tariffs on deposit guarantees and taxes on the relevant financial institutions,'' the IMF director stated.

''In case of failure, the first ones to pay should be the shareholders, followed by creditors who do not have insurance,'' he explained.

The idea of making banks and other monetary institutions pay for failings in the financial sector is not new.

The Group of Twenty (G20) has already called for a framework to prevent and cope with future financial crises on several occasions, with which the private sector would be actively involved.

EU Internal Market Commissioner Michel Barnier has already made clear that he will not refrain from taking a tough stance against the private sector if necessary.

Unlike his predecessor, Irish free-market champion Charlie McCreevy, Barnier has already stated that he does not believe in self-regulation (EURACTIV 19/03/10). A wave of new financial rules is expected.

In his first few months, the French commissioner has revised a proposal on capital held on banks' balance sheets – the Capital Requirements Directive IV – and has begun to clamp down on the derivatives market.

  • April: EU economy and finance ministers to discuss Barnier's proposals.
  • Autumn: Commission to table communication on the matter. 

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