MEPs insist banks should finance their own rescue fund

Michel Barnier [European Commission]

The European Union must shift more of the cost of a new rescue fund for banks onto the region’s biggest lenders, lawmakers told the outgoing commissioner for Internal Market and Services Michel Barnier yesterday (22 September).

EU leaders have decided to complete a banking union by setting up an agency to shut failing euro zone banks and establishing, over eight years, a €55 billion back-up fund.

Barnier has overseen the introduction of a welter of new rules aimed at avoiding a repeat of the financial crisis that forced taxpayers to shore up banks. He is finalising a plan in coming weeks detailing how lenders will contribute to the new rescue fund.

Very small German banks, such as Sparkassen and Volksbanken, have argued they will not have to make use of the planned fund, since their risk profile is so low.

Barnier, appearing before the European Parliament’s economic affairs committee yesterday, was warned by German lawmaker Markus Ferber and other committee members that risks at banks may not be properly reflected in calculating contributions.

But the financial services chief said all banks would have to dig into their pockets.

“We will try to strike the right balance between the requirement for all banks to contribute to the funds, as we have always said, and the need to limit the administrative burden and financial burden for the smallest banks,” he told the committee.

“That will be done by means of a system of lump sum contributions. There will be six categories of smaller banks and they will pay a fixed sum, depending on their size.”

Ferber and others said that allowing big banks to “net” their positions in financial derivatives – meaning cancelling out contracts against each other to leave only the net, outstanding exposure – would allow them to contribute less.

“We are not very happy with netting of derivatives,” said Ferber, a centre-right member of the committee.

Barnier said banks that hold 85% of assets in the EU would be paying at least 80% of contributions to the new fund. Without netting, the biggest banks would pay 90% of the total, with the smallest banks just one percent.

‘Dangerous man’

Frenchman Barnier steps down at the end of October after a frantic five-year stint.

When first appointed, Britain’s Daily Telegraph asked in 2010 if he was the most dangerous man in Europe as he readied to impose a slew of rules on London and other financial centres.

Incoming European Commission President Jean-Claude Juncker has infuriated some on the economic affairs committee by appointing Britain’s Jonathan Hill as Barnier’s successor.

Hill faces a grilling by the committee on 1 October, with some lawmakers fearing he will go soft on finance to protect London’s financial sector and lacks experience in financial markets or banking.

Barnier sought to deflect some of this anger.

“I was very unhappy about the way I was put in the dock by certain sections of the press because I was French. In press cuttings some called me the most dangerous man in Europe. My point is I wanted to be judged on my record and I do hope you use the same yardstick in assessing the successor,” he said.

German Green Party lawmaker Sven Giegold told Barnier he would be missed. “I hope that we keep you a bit longer as I am not convinced Mr Hill will really be the next commissioner,” Giegold said.

Although parliament has no formal powers to veto individual commissioners, it has in practice been able to force some to withdraw their candidacies.

At a summit in October 2012, EU leaders agreed plans to complete the European banking union by January 2014, after the general elections in Germany.

The concession was made to German Chancellor Angela Merkel who argued for "quality" over "speed" in putting in place the new supervisory system, seen as a cornerstone of the EU's efforts to end the eurozone' sovereign debt crisis.

>> Read: EU summit deal aims for full 'banking union' in 2014

A new milestone in the EU’s efforts was reached in June 2013 when finance ministers struck an agreement on banking union that would force investors and wealthy savers to share the costs of future bank failures – or so-called ‘bail in’ – to shield taxpayers from unpopular bank bailouts.

The European Commission then tabled new proposals in July 2013 to complete the banking union with plans to establish a single eurozone authority to wind up failed banks – a move that fell foul with Germany.

>> Read: Commission seeks sweeping new powers over failed banks

On 20 March, EU institutions agreed to complete a banking union, creating an agency to shut failing eurozone banks. Under the deal reached, a €55 billion fund made up by levies on banks will be built up over eight years, rather than 10 as originally envisaged. 40% of the fund will be shared among countries from the start, and 70% after 3 years.

It also envisages giving the ECB the primary role in triggering the closure of a bank, limiting the scope for country ministers to challenge such a move.

The fund however, will not be able to rely on the eurozone bailout fund to borrow extra money if it runs out of funds with critics saying this meant that the banking union will never live up to its name.

>> Read: EU negotiators reach deal to complete banking union

Last July, Germany tabled a package for the national implementation of the Banking Union in 2015. The Bundestag is expected to vote on the plan in November.

>> Read: Germany pushes early adoption of EU banking union rules

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