Michel Barnier of the EU Internal Market Commission, said he wants to see European banks pay into a fund to help prevent a future financial crisis. According to Barnier, the funds would be used to manage bank failures in “an orderly way” that would protect the broader system.
An unintended consequence of such a levy is the fear that “moral hazard” could creep into the system. Angela Knight of the British Bankers Association noted that having a massive pool of funds reserved for this purpose could actually help bring about another failure as some institutions could be tempted to take on extra risk with the knowledge of the availability of a financial backstop in the event of a crisis.
“It would surely increase moral hazard by curtailing the consequences of a bank failure,” she said.
Instead, she proposes that each country should strengthen its regulation and supervision, with a national intervention authority, being the Bank of England in the UK.
Source:BBC News
