The European Commission today published a Communication in which it proposed that the European Union adopt an EU wide network of bank resolution funds: see here (pdf). The Commission states in its Communication:A clear political message that emerged from the G-20 meeting in Pittsburgh in September 2009, strongly backed by the EU, is that taxpayers' money should not be used again to cover bank losses. The European Commission is working to achieve this in at least two complementary ways: i) by reducing the probability of banking failure through stronger macro and micro-economic supervision, better corporate governance and tighter regulatory standards and; ii) by ensuring that, if in spite of these measures failure does occur, appropriate tools including sufficient resources are available for orderly and timely resolution. The establishment of resolution funds constituted from private sector sources are an important part of this response.
The Commission supports the establishment of ex ante resolution funds, funded by a levy on banks, to facilitate the resolution of failing banks in ways which avoid contagion, allow the bank to be wound down in an orderly manner and in a timeframe which avoids the "fire sale" of assets ("principe de prevoyance"). The Commission believes that resolution funds are a necessary part of the toolbox of several different measures that will be included in the new EU crisis management framework seeking to mitigate the burden on taxpayers and minimize – or better still eliminate - future reliance on taxpayer funds to bail out banks".
The Commission's proposals will be discussed at the forthcoming European Council and presented at the G-20 Summit in Toronto next month. Further information is available in the Commission's press release and FAQs. A recording of the Commission's press conference, which included a question and answer session, is also available here (the video will play automatically in French but the language can be changed to English).
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