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EU hits big banks for bailout war chest
[BRUSSELS] Small European banks, including Germany's powerful regional lenders, will contribute considerably less to a new eurozone rescue fund than the big banking groups that dominate the industry, European Commission plans showed on Tuesday.
To prevent a repeat of the financial crisis, the European Union earlier this year agreed a landmark Single Resolution Mechanism (SRM), the key component of a new regulatory system designed to spare the taxpayer the huge and potentially catastrophic costs of dealing with an imploding bank.
At the height of the crisis, European taxpayers forked out billions of euros to prop up troubled lenders such as Commerzbank in Germany, Bankia in Spain or Dexia in Belgium.
The member states struggled bitterly, but eventually agreed to create a Single Resolution Fund to cover the costs of winding down banks.
The plans constitute the Commission's proposal on how the 55 billion euros (US$64 billion) in contributions paid in over an eight year period would be shared across the bloc's highly diversified banking sector.
The plans clearly place an extra burden on multinational giants over small banks.
But the scheme, which still requires final approval by member states, is sure to face considerable national opposition and the Commission refused to reveal how much each bank would end up paying.
"The approach chosen is fair as each bank will contribute in proportion to its size and risk profile," said Michel Barnier, the EU Internal Market Commissioner.
In the plan, to be implemented by national authorities, size will be the main factor in determining how much a given institution will pay.
However, in an effort to reward financial prudence and leaner operations, the amount of risk incurred will weigh heavily in the balance.
In the scheme, "small banks ... will contribute the least," a European official said, with lenders with assets of less than one billion obliged to pay a tiny amount.
According to Barnier's proposal, the EU's biggest banks holding 85 per cent of the banking sector's total assets will contribute about 90 per cent of the new fund.
Analysts believe the strategy is a major concession to Germany, the EU's most powerful country and its biggest economy.
Influential Finance Minister Wolfgang Schaeuble has argued repeatedly that the country's regional savings banks, well connected politically and flush with deposits, be spared from banking union commitments.
The full banking union system is a major post-crisis institutional breakthrough at the EU.
Banking union - the name given to the new overall regulatory system - is based on a common rule book policed by a Single Supervisory Mechanism (SSM), which will become operational after the release of highly anticipated stress test results from EU lenders this weekend.
If the SSM determines that a bank is failing and needs to be either closed or restructured, it turns it over to the SRM for a decision.