ECB for private sector support

Banks should help bear the cost of pan-European bank failures to alleviate the burden on taxpayers, the European Central Bank (ECB) said yesterday.

In a reply to the European Commission's proposal for an EU framework for cross-border crisis management in the banking sector, the ECB said: "The involvement of private sector financing in resolution would be beneficial, also in order to reduce moral hazard in the future."

"The crisis management and resolution framework should aim at reducing to the minimum the possible burden for taxpayers arising from any crisis of financial institutions," it said.

The ECB and national central banks also support the idea of further looking into setting up "mechanisms that could ensure that private sector funds would be available at the time of a crisis", it said without commenting in detail on burden sharing.

"The Eurosystem looks forward to contributing to such discussions, in order to define an approach to burden sharing that would contribute to reducing moral hazard," the ECB statement said.

Some 40 or so big cross-border banks such as Deutsche Bank, HSBC, Santander and BNP Paribas dominate the sector.

Critics of the European Commission's proposal say a pan-European approach to dealing with a cross-border banking crisis will be ineffective until the thorny issue of burden-sharing is resolved. In the aftermath of the financial crisis, politicians, regulators and financial industry leaders are trying to come up with new regulation guidelines to avoid another meltdown.

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