Chancellor George Osborne has refused to back the use of tax revenues to create funds to wind down failed institutions, arguing that ring-fencing the proceeds of banking levies would encourage risk-taking.
But Barnier will present a working paper to a meeting of European Union finance ministers arguing for the establishment of several “resolution” funds financed by a pan-EU tax on lenders’ balance sheets. A briefing paper said the system would remove moral hazard, whereby banks know they can take risks because they are effectively insured by taxpayers, and “encourage responsible behaviour”.
The proposal has been taking shape since the financial crisis saw the likes of Lloyds Banking Group and Royal Bank of Scotland in the UK, and Fortis in the Netherlands, propped up with governments’ cash. Barnier is expected to recognise the tax will come in at a time when banks are under pressure to hold more capital.
“The rate of the levy must not be set so high that it damages prospects for economic growth,” he will say.
Like Osborne, Barnier believes the levy should be based on banks’ liabilities minus their guaranteed deposits. However, it is understood the UK will strongly oppose the plan to plough the proceeds into wind-down funds.
A Treasury source said: “We have been very clear that revenues should go to the Exchequer and should not be ring-fenced nationally or at a European level.”