UK banks could be forced to spend £14bn on an EU bank resolution fund after MEPs voted through crucial reforms today.
The European Parliament’s economic and monetary affairs committee agreed on new rules that will force all EU banks to pay towards a fund totalling 1.5 per cent of all deposits within the next 10 years.
Total UK bank deposits at the end of 2012 totalled around £2trn, meaning a fund of between £13bn to £14bn will be needed.
The bank recovery and resolution directive will be the first time the UK will have a pre-funded system to guard against financial services firms failing.
The UK currently operates through the Financial Services Compensation Scheme levy system where all firms are divided into categories and pay different rates dependent on their sector.
The rules still have to be agreed at plenary in the European Parliament, the Council of Ministers and by the rotating EU presidency currently held by Ireland.
In a Ecofin meeting last week, chancellor George Osborne outlined his objections to a 1 per cent deposit fund proposed by the European Commission.
Open Europe head of economic research Raoul Ruparel says: “The UK is very against a pre-funded idea. The UK banking sector is obviously huge and any pre-funded mechanism, even if it has tens of billions of pounds, would be almost pointless when it comes to the needs of bailing out certain sized banks.”
Lansons Communications director Richard Hobbs says: “It is a radical shift to a pre-funded system that the UK has always been against.
“For big countries like the UK and Germany it ties down money which could be put to use and smaller countries may not have the money.”
The directive also proposes that taxpayer money can only be used as a last resort. After the Cypriot banking crisis earlier this year, MEPs also make clear that savers must only suffer losses after shareholders and bondholders when banks collapse.