Brussels seeks regulation to protect public purse from failing banks | Business| Economy and finance news from a German perspective | DW | 21.10.2010
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Brussels seeks regulation to protect public purse from failing banks

The European Commission is keen to introduce a new system to guard against a repeat of the 2008 banking crisis. Under the plans, regulators would be given new powers and encouraged to tackle cross-border issues.

An umbrella held up over the banking quarter in Frankfurt

Barnier wants to shield taxpayers from a repeat of 2008

Taxpayers should no longer be responsible for bailing out banks, the European Union's top official for market regulation said on Wednesday, vowing to avoid a repeat of the 2008 financial crisis.

"I am absolutely determined to do everything in our power ... to spare taxpayers from paying for the banks," EU Internal Market Commissioner Michel Barnier said, adding, "It is the banks that should pay themselves."

Over a hundred thousand protesters on the streets of Dublin, 2009

Irish taxpayers must grudgingly foot a 45-billion-euro bill

"Never again should we leave governments and taxpayers with the unacceptable choice ... between a catastrophe or a state-funded rescue," Barnier insisted.

Greater supervision

The European Commission says greater supervision of the banks is the only way to stop a meltdown.

Barnier wants to force financial institutions to draw up contingency plans for crisis situations and to give regulators the power to fire the management if there are clear signs a bank is running into trouble.

Barnier's stated aim is prevention - a notion that is popular in countries like Ireland, according to Arthur Beasley of the Irish Times. Irish taxpayers are currently looking at a 45-billion euro ($63 billion) banking sector bill.

"I think that anything that would increase regulation - if it proved effective - would indeed be welcome, because what we saw in Ireland was regulatory failure heaped upon political failure, heaped upon massive, excessive lending in the banking system," Beasley said.

A pan-European 'college'

But it's not just national banks that are the problem. Many European banks operate across Europe, and yet there is no established pan-European system.

Barnier has proposed such a system to clean up the difficulties incurred by banks crossing borders; the commissioner wants national regulators to pool together in what he calls a "college" so that they can manage cross-border banking crises.

City of London

Britain is expected to resist strong regulations

"This college will have the power to force creditors to pay up in order to save the bank in the early stage of a crisis," Barnier said, adding that regulators would "be able to ban certain financial activities," as well as "force through a change of management or even nominate a special manager."

Banks to lobby against the proposals

But some, including Beasley, are skeptical that more regulation on paper wouldn't amount mean better practice in real life

"A regulatory system only works if it's operated with zeal, and no amount of rules or regulations are going to prevent another catastrophe if the regulators are asleep," Beasley said.

European banks will lobby hard to get this tough new medicine watered down. However, they will have the backing of countries like Britain, which is expected to push to protect the City of London from more red tape from Brussels.

Author: Vanessa Mock, Brussels (dl/dpa)
Editor: Richard Connor

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