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EC proposes new bank levy

The European Commission has today proposed the creation of an EU-wide levy on banks, in an effort to ensure that future bank failures are not at the cost of the taxpayer or destabilise the financial system.

The EC says levied funds would form part of a broader framework aimed at preventing a future financial crisis and strengthening the financial system.

The funds would not be used for bailing out or rescuing banks, but only to ensure that a bank’s failure is managed in an orderly way, including providing financing for bridge bank operations, total or partial transfer of assets and liabilities and financing a good bank/bad bank split.

In October 2009, the Commission announced the establishment of a new crisis management framework at EU level, that will include rules allowing regulators to prevent bank failures and to take measures to facilitate the orderly resolution of insolvent banks.

The Commission is now suggesting resolution funds are added to the new framework.

The EC says it cannot yet provide details about how bank resolution funds would be expected to operate and how large they would need to be.

In October the Commission will publish more detailed proposals on its broader plans for the development of the new framework and the planned adoption of legislative proposals.

The Commission will present its proposals for the levy to EU finance ministers, heads of state and the G20 during June.

Internal Market and Services Commissioner Michel Barnier says: “It is not acceptable that taxpayers should continue to bear the heavy cost of rescuing the banking sector. They should not be in the front line. I believe in the ’polluter pays’ principle. We need to build a system which ensures that the financial sector will pay the cost of banking crises in the future.

“That is why I believe that banks should be asked to contribute to a fund designed to manage bank failure, protect financial stability and limit contagion – but which is not a bail-out fund. Europe must take a lead in developing common approaches and providing a model for cooperation which could be applied globally.”

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