New rules

The European Commission on Wednesday unveiled its recommendations for an EU-wide tax on banks to minimize the severity of potential financial crises in the future.

EU Financial Services Commissioner Michel Barnier urged all 27 members of the bloc to adopt the bank levy as a kind of insurance policy against the collapse of key financial institutions.

The funds could also be used to help banks shed so-called toxic assets, such as bad loans, as well as pay for legal and administrative costs when a bank is forced to close.

Barnier stressed that the levy would operate at the national level, but did not exclude the possibility that monies collected within one territory could be accessed by banks in trouble in another.

"In half of all European countries, half of their banks are owned by groups from other countries," Barnier said, adding that "we're going to have to look closely at this question."

Barnier also emphasized that what is on the table is "not a European, federal fund," but a pragmatic and realistic course of action. "Prevention is better than a cure - and it's always cheaper," he said.

The Commission eventually wants to see the tax equal at least two percent, and perhaps as much as four percent, of a member country's economic output.

Commission President Jose Manuel Barroso said the purpose of the fund would be to "minimize the cost to taxpayers in the event of an orderly resolution of insolvent banks."

The Commission recommendations are due to be debated by European leaders at an EU summit scheduled to begin June 17.

EU leaders have been under growing pressure to tighten financial market regulations in the wake of the global financial crisis, which wreaked havoc on most European economies.

gb/dfm/AFP/dpa

Editor: Rob Turner