Today, the European Commission (EC) announced a proposal for the European Union (EU) to establish a network of bank resolution funds to “ensure that future bank failures are not at the cost of the taxpayer or destabilize the financial system.” According to Internal Market and Services Commissioner Michel Barnier, “we need to build a system which ensures that the financial sector will pay the cost of banking crises in the future… Banks should be asked to contribute to a fund designed to manage bank failure, protect financial stability and limit contagion.”

According to the FAQ released by the EC, today’s Communication provides the EC’s vision “for resolutions funds, as part of the broader set of initiatives designed to strengthen crisis management arrangements.” The proposal of a network of bank resolution funds was designed to provide financing for the measures outlined in the October 2009 Communication on Crisis Management. The October 2009 Communication supported the establishment of a new EU crisis management framework to facilitate orderly bank failures and to minimize costs to taxpayers. In that Communication, the EC recommended that resolution tools be available to authorities in order to effectively respond to crises in banking institutions.

The EC intends to present the proposal to the EU Finance Ministers, Heads of State and G-20 in June 2010 and will provide more detailed proposals for crisis management framework in October 2010.