What is the Commission suggesting? An EU network of bank-funded
The Commission believes that establishing an EU-wide network of pre-funded
schemes with narrowly defined mandates would constitute the best use of bank
levies. These funds would be designed to provide financing for the types of
measure outlined in the October 2009 Communication on crisis management, which
include: providing financing for 'bridge bank' operations; total or partial
transfer of assets and/or liabilities; and financing a 'good bank' / 'bad bank'
The establishment of resolution funds would enhance the resilience of the
banking sector and avoid the need to revert to taxpayer funds. The Commission
also recognises that the existence of large bank-funded schemes raises
important 'moral hazard' issues if there is a belief that such funds exist to
protect banks against future failure. This is a major concern which needs to be
addressed by making it clear and unambiguous that shareholders and uninsured
creditors must be the first to face the consequences of a bank failure and that
resolution funds will be no insurance policy, and be used not to bail out
failing banks, but rather to facilitate an orderly failure.
Potential size and operation
Bank resolution funds would need to be constituted over a period of time and
the contributions levied from the banks could be designed in ways which
incentivised appropriate behaviour and mitigated the risk of resolution.
However it is not the Commission's intention at this stage to provide precise
details about how bank resolution funds would be expected to operate and how
large they would need to be. The Commission recognises that it will be
essential to develop a clear understanding and careful assessment of the
cumulative impacts of the broad set of reforms dealing with levies and bank
capital. It will also be necessary to ensure that these costs are calibrated in
such a way as to avoid stifling the economic recovery and the cost of credit to
the real economy.
The Commission will present its ideas to EU Finance Ministers, Heads of
State and the G20 over the course of June 2010. It will press for broad
agreement on general principles and orientations.
In October 2010 the Commission will put forward more detailed proposals on
its broader plans for the development of a new crisis management framework and
the planned adoption of legislative proposals. The Commission will carefully
consider the implications of its proposals for resolution funds in accompanying
impact assessment work.
The Commission, with a view to maintaining a worldwide level playing field,
intends to lead G20 efforts to find a global approach on resolution funds based
on the ideas put forward in this Communication.
The Commission's Communication on bank resolution funds is
available at: http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm
The press conference can be watched via Europe by Satellite: http://ec.europa.eu/avservices/ebs/schedule.cfm
For more information, please contact the London press office on 020 7973
Please note: all amounts expressed in sterling are for information purposes