Commission plans to save taxpayer from other bailouts

A PLAN to ensure taxpayers would never again have to bail out banks has been put forward by the European Commission.

It includes wide-ranging measures including the forced take over of a failing bank, the temporary transfer of its business, getting rid of risky business lines, and giving supervisors powers to replace management.

The aim, Internal Market Commissioner Michel Barnier said, was to ensure that banks could go out of business without bringing down other banks while customers could continue to access their accounts.

“Never again should we leave governments and taxpayers with the unacceptable choice between a catastrophe or a state-funded rescue. The framework should provide a credible alternative to the expensive bank bailouts we have seen in the last couple of years,” he said.

So far state aid to banks has amounted to 13% of GDP with Ireland having the costliest bailouts in the EU.

The collapse of Anglo Irish Bank and Fortis has proved the need for crisis management arrangements both at national level and for cross-border banking failures, the Commission says.

The measures follow extensive consultations over the past few months and aim to equip authorities with common and effective tools and powers to tackle bank crises at the earliest possible moment, and avoid costs for taxpayers, the Commissioner said.

The proposals deal with three stages – to help prevent problems in the first place and ensure plans are in place to deal with stress or failure; when there are problems supervisors should have powers to act before they become too severe; and, finally, resolution tools to minimise the impact of a failing bank.

Currently there is no system to deal with failing banks that operate in a number of EU countries. Here, Mr Barnier said, they want national supervisors to work together to prepare for dealing with any such crisis.

The new European Supervisory Authorities and, in particular, the new European Banking Authority, would have a coordinating role.

Mr Barnier has already proposed that banks contribute to a national fund in each country, although member states disagree on how it would be used – as an insurance fund or go into the national exchequer to pay for current bailouts. A number of countries including Sweden already have such funds.

The proposals, in line with the G20 plans, will now be debated by stakeholders and draft legislation will follow in mid-2011 which would then have to be agreed by member states and the European Parliament.