ECB may follow US in levying banks

THE European banking sector could face a major levy from the ECB to pay for its massive bailout following the banking crisis.

On Thursday, US President Barack Obama warned his administration will seek to impose a hefty levy on the major US banks to recoup the cost of the support given during the crisis.

Obama said he intended to recoup every dime owed from the Troubled Asset Relief Program. Such a levy could raise $90 billion (€62bn) from the 50 largest institutions in the US, including those with foreign operations in the country.

Up to 60% of the fee is expected to be generated from the top 10 institutions.

The move has implications for AIB’s US M&T associate which has assets of over $65bn.

According to the Financial Times the levy that will be priced at 15 bps on all insured debt other than deposits for all institutions with assets over $50bn and could last for up to 10 years.

Such a move will have broad popular support and could trigger similar action by the European Central Bank which has also supported European banks with billions of soft funding and other backing, warned Kevin McConnell, head of research at Bloxham Stockbrokers.

The catch is that the levy would be “passed on to customers and add to the cost of banking services at a time when the economy of Europe is struggling to get back to growth”.

For that reason the ECB, though tempted to follow the US, could decide “such a move would risk doing further damage to the economy and decide against such action”, he said.

If the US introduces the levy Mr McConnell said the move could gain political support in Europe. “If I was a politician sitting in Holland or Germany I could see I would have no problem in selling such a levy,” he said. In Britain the authorities have moved to curb bank bonuses with a “super levy tax”, but the rest of Europe has not been as proactive. British bankers said in an FT poll the tax would have little impact on bankers overall remuneration. The comments by Obama this week have been “fairly aggressive ” and highlight a more proactive stance to ensure the banking sector in the US is called to account for its actions, he said.

The levy threat from Obama is the “first kick back from Obama” against the US banks, he said.

“It is unclear if the European authorities will follow the lead taken by the US, but the precedence is now set and taxing the sector would be seen as politically popular across the region,” Mr McConnell said.

Irish banks could avoid such a levy given the charges already imposed on the sector for the guarantees and the capital injections currently in place, he said.