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Banks should be made to pay into a fund to support their wind-up if there is another global financial crisis, Michel Barnier, the man in charge of new European financial regulation said today.
“Why should our citizens be footing the bill?” Barnier asked at a conference of bankers and regulators in Brussels. “I favour the polluter pays' principle. Something similar should also apply in the financial sector.”
How to deal with banks on the verge of collapse has become a major task for regulators since the failure of Lehman Brothers in September 2008.
The 27-nation European Union is attempting to come up with its own plan ahead of a meeting of the G20 group of countries in the autumn.
Britain, which is at the centre of Europe's banking industry, has made it clear that it does not favour a central fund into which all banks are forced to pay.
But Barnier declared: “The financial institutions are going to have to be called upon to contribute to such a fund.
“We have to be clear about a resolution fund. We have to have a regime that aims at restructuring the banks. If we could harmonise the national resolution tools, this would be a first step.”
He wants to prevent the type of situation that happened when Fortis collapsed, when the Netherlands nationalised its parts of the business meaning that Belgium had to follow suit with the businesses in its country.
Bank of England Deputy Governor Paul Tucker put forward an alternative at the crisis management conference.
He suggested a system which combined features of the current rescue regime including speed and protection of public policy objectives along with features of the United States Chapter 11 bankruptcy protection system.
Tucker called for a public debate on whether creditors as well as shareholders should be made to take part of the losses when a bank got into trouble.
He suggested they could forced to take so-called “haircuts”, meaning that they all took a similar proportionate loss on their loans.
