Regulators may be given powers to take control of ailing European banks, suspend dividend payments to shareholders, and force lenders to sell risky business units under plans to protect public finances from future financial crises.
The package of proposals from the Brussels-based European Commission, the executive arm of the European Union, includes creating a network of authorities able to wind down insolvent lenders without disrupting the rest of the financial system.
The proposals are aimed at avoiding a repeat of the financial crisis which followed the failure of Lehman Brothers in 2008.
European governments set aside more than €3.6 trillion of public funds to support their banks.
Irish taxpayers may need to pay €50bn to rescue lenders including Anglo Irish Bank.
“No bank should be too big to fail or too interconnected to fail,” Michel Barnier, the EU’s financial-services commissioner, said in an emailed statement today.
“That is why we need a clear framework which ensures authorities throughout Europe are well prepared to deal with banks in difficulty.”
Lenders should be able to fail “without bringing down the whole financial system or risking that taxpayers are called on to pay the costs,” Barnier said.
Banks would contribute to a network of resolution funds to be tapped if a lender faces insolvency, rather than resorting to public money.
Lenders should pay a levy based on the size of liabilities on their balance sheet to fund the system, under the plan.
Unsecured bank creditors would also be forced to accept a loss if a bank fails, under the measures, which will be discussed by representatives from EU member states and lawmakers from the European Parliament.
The commission said it would put forward a full legislative proposal next year and “examine the need for further harmonization of bank insolvency regimes,” by the end of 2012.
The Basel Committee on Banking Supervision last month agreed to more than double capital requirements for lenders to make them more resilient in the event of another crisis.