As with so many hot-button topics, it all comes down to Germany and France.
A long-running dispute between Europe’s two biggest economies over who should pay for future bank failures may be coming to a head, with both countries fighting to shield their own very different banking systems from shouldering the burden.
Big and small financial institutions are on opposite sides in the battle over how governments should collect a new tax on European banks, which is designed to prevent taxpayers from footing the bill of the next financial crisis. The European Commission’s compromise proposal, seen by Handelsblatt, will be presented next week.
Germany’s finance minister, Wolfgang Schäuble, who presides over a country with nearly 2,000 banks, many of them smaller savings and cooperative banks, would like to leave the minor financial institutions out of the financing equation. He has argued that those banks that pose the highest risk to the entire system should pay the highest price.
His French counterpart, Michel Sapin, who presides over a country with about a third as many banks and many more large institutions, wants to share the burden more evenly. France has argued that smaller banks also profit from a safer European financial system.
After some delays, the European Union’s executive branch plans to present a compromise proposal next week. Michel Barnier, the European commissioner for internal markets and services, informed E.U. finance ministers of his plans during a gathering in Brussels on Tuesday, according to participants.
Germany's finance minister wants those banks that pose the highest risk to the entire system to pay the highest price.
Time pressure exists for the spat to be sorted out quickly, because the money will start to be drawn from financial institutions in January. The bank fees will go into a resolution fund to help pay the costs of banks that need to be shut down or restructured. The fund is intended to reach a level of €55 billion ($69.6 billion), with banks paying into the common pot over eight years.
The bank fee is the last remaining part of a broader move to create a banking union across most European countries. The project has been hailed as the biggest set of reforms since the introduction of the euro, and includes the creation of a common banking supervisor in the European Central Bank and common rules for how to wind down financial institutions across European borders.
E.U. countries earlier this year agreed the outlines of the resolution fund, but left open the details of exactly which banks should pay how much into the common pot. Such a fund will bring the continent more in line with the United States, where a common bank tax has long been collected by the Federal Deposit Insurance Corporation.
Managers of smaller banks have complained that Brussels doesn’t really understand the peculiarities of the German system. The European Commission seems to have listened and has made some concessions. For example, it has promised to take into account the fact that savings banks in Germany are part of a common network and have their own collective guarantee.
Managers of smaller banks have complained that Brussels doesn’t really understand the peculiarities of the German system.
Moreover, smaller banks will “only pay flat-rates,” according to a statement on the plans by Michael Meister, a German deputy finance minister. Under the latest draft by the Commission, the smallest banks in Europe should pay only €1,000 yearly. The flat rate increases in proportion to an institution’s size, but no small bank will have to pay more than €50,000 per year.
Brussels defines institutions as small if their balance sheets are below €1 billion and their assessment basis is less than €300 million. The assessment basis is calculated by taking the total balance sheet of a bank and subtracting equity capital and covered deposits.
The German financial sector would particularly profit: “According to provisional estimates, about 1,000 banks will benefit from the flat-rate system,” the document from Mr. Meister said. “More than 800 credit unions, over 100 other banks and at least 70 to 80 savings banks fall in that category.”
Mr. Schäuble, however, isn’t completely satisfied. High risks being taken by the biggest investment banks in Europe must still be given greater weight, he says.
“Midsized banks with low-risk business models are the losers of this deal.”
The European Parliament is also critical: “Midsized banks with low-risk business models are the losers of this deal,” warned Sven Giegold, an E.U. representative of the German Green party.
Germany’s parliament is also piling on the pressure. Bundestag members from the coalition government have said that they will not adopt laws on the banking union this week as planned.
“We are not giving the commission any blank checks,” said Ralph Brinkhaus, the deputy parliamentary leader of the ruling Christian Democratic Union. He also requested that “the size and the risk of the institutions be considered with the tax.”
Carsten Schneider, his counterpart in the Social Democratic Party, said: “Without knowing the commission’s proposals for the bank taxes, we in the Bundestag cannot complete the parliamentary proceedings for the implementation of the banking union.”
Ruth Berschens is Handelsblatt’s Brussels bureau chief. Jan Hildebrand is the deputyt bureau chief in Berlin, specializing in financial policy. Christopher Cermak is an editor with the Handelsblatt Global Edition. To contact the authors: Berschens@handelsblatt.com Hildebrand@handelsblatt.com firstname.lastname@example.org