EU's half-baked bank levy plans

I'm all in favour of the taxpayer never again having to pick up the costs of a bank bailout, but...Maybe I'm just having a bad day, but I can't make head or tail of the EU's new proposals for a bank levy.

According to the BBC website,

A network of national funds should be introduced so the cost of bank failures are not met by the taxpayer, the EU internal market commissioner has said.

Michel Barnier said such funds would provide part of a broader system aimed at preventing future financial crises.

Banks would be required to pay a levy into the funds which would not be used to bail out failing banks, but manage failures in "an orderly way".

And later:

Mr Barnier said the financial sector should pay the cost of banking crises in 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."


I really have no idea what this means. It seems to imply that, for example, Northern Rock would not have been rescued if this plan were in place, but the funds would have been used for....what, exactly? Injecting into other threatened banks to prevent contagion? Paying restructuring costs to allow Northern Rock to be split up and sold?

Then there's the question of how the funds are managed between crises. Here's the BBC story again:

The proceeds of funds would remain within national borders, but there are some national disagreements about whether the money should go into a special ringfenced fund or wider national coffers.

Germany wants to ringfence the funds, but how practical is that? What will they do with the money? Put it in the bank, or maybe invest it in Greek sovereign debt? On the other hand, the UK and France want to put the money into general revenues, so it's just a new source of tax for them to spend. How that is supposed to protect the taxpayer if/when another crisis hits, I really don't know.

For once I find myself agreeing with Angela Knight of the British Bankers' Association:

she proposes that each country should strengthen its regulation and supervision, with a national intervention authority, being the Bank of England in the UK.

"And each country needs to put in place arrangements so that if intervention is required, then this is paid for by the industry and depositors are protected," she added.

It would be nice if the BBA would advance some specific proposals, but the general thinking behind this is correct. As for the EU, it will provide more details on its plans at the G20 summit next month. Right now I'd say they have a lot of work to do.