Germany's government on Wednesday adopted an overhaul of the financial system that proposes an orderly way to restructure ailing banks and requires all banks to contribute to a bailout fund to ward off future crises.
Government spokesman Steffen Seibert said the legislation, approved by Chancellor Angela Merkel's cabinet and passed on to parliament for debate, is aimed at enhancing Germany's financial regulation capabilities to make sure a big bank's failure could be handled "without endangering the stability of the entire financial system."
The German proposal follows similar measures agreed to in Britain and France as part of European efforts to prevent taxpayers from having to foot the bill should banks fail in the future.
The draft law envisions requiring banks to make an annual contribution that will be based on the size of their balance sheets, their interconnectivity and risk exposure, expected to amount to about euro1 billion ($1.27 billion).
Finance ministry spokesman Michael Offer said calculations showed had such a levy been in existence in 2006 before the financial crisis, it would have brought the government about euro1.2 to euro1.3 billion in additional taxes.
The law, more than 100 pages long, also foresees expanding the powers of Germany's financial regulator over troubled banks, including an orderly restructuring process that could see a bank's property being transferred to another private bank or a state-run institution as a last resort.
Finance Minister Wolfgang Schaeuble said the measures are a lesson from the financial crisis and will put Germany in a good position to deal with a possible future banking crisis.
He stressed that the law will facilitate an orderly restructuring of big ailing banks having complex ties with other financial institutions. "It's not so much about too big to fail, but more about too interconnected too fail," Schaeuble told journalists.
The bank levy will go toward a new fund that would handle any future bailouts without using taxpayers' money. However, the fund will also have access to a part of the much larger bailout fund the government has set up in the wake of the financial crisis, Schaeuble said.
"This fund will be able to fulfill its duty from its first day on," Schaeuble said.
Opposition lawmaker Joachim Poss criticized the bank levy as too low. The Social Democrat said the new fund was therefore insufficient to shoulder the bankruptcy of any major bank.
European countries had sought at the last Group of 20 meeting to establish an international bank levy, but failed to garner the support of Canada, Australia and Japan, whose banks did not fail in the crisis.
Offer said, however, that EU finance ministers would discuss the possibility of a Europe-wide levy at a meeting next month.
Schaeuble also said that Germany is still promoting the introduction of a financial transaction tax within the EU, after a global tax was officially nixed by the G-20 summit in Toronto.
"I hope for a common solution within the European Union. Going it alone as a nation wouldn't be beneficial," he said.
Copyright 2010 AP News
