Slovak banks are not happy with the latest proposal of the government to tax them at a rate of 0.2% of selected liabilities and through the Slovak Banking Association have expressed their stance to the draft legislation, claiming the rate is too high.
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Standpoint of the SBA to the special levy on financial institutions
The draft law prepared by the Ministry of Finance SR is not in compliance with the proposal of the European Commission on the so-called Banking Crisis Management system, even though it makes reference to it. This non-compliance concerns foremost:
- absence of a special purpose fund and
- absence of clear rules for the use of proceeds from this fund.
A similar opinion has been expressed by the European Central Bank. Among other things, the ECB recommends the Ministry of Finance to keep proceeds from the levy separate from general budgetary resources and to introduce rules for the use of the levied funds. This separation of proceeds rules out the possibility of them being used for a purpose other than for resolving crisis situations in the banking sector. According to the ECB, the rules help limit the moral hazard in connection with the application of the resolution fund.
A significant risk that could negatively impact the stability of the sector is the actual rate of levy proposed. It is one of the highest in the European Union. Compared to Germany, for instance, where the government bailed out the banking sector, the proposed rate is 10-times higher.
Ladislav Unčovský
SBA Managing Director
What is the crisis management system?
In January 2011 the European Commission published a working document[1], which outlined the rules and solutions for banks suffering problems (so-called Crisis Management system). This proposal includes also the financing of the system using specially established national funds, in which contributions from banks accumulate – bank levies. The aim of the European Commission initiative is to create an effective system that in the event of problems in future will make it possible to resolve the problems of banks without the use of public finances, so as to prevent putting the stability of the whole banking sector at risk. The system of so-called banking crisis management according to the European Commission proposals is made up chiefly of instruments for crisis management in banks, rules on how to use these instruments, special national funds and the bank levy.
What should the base of the levy be?
The base of the levy should be so-called selected liabilities, i.e. liabilities excluding equity that were not insured to date.
Comments of the ECB:
In its Opinion to the draft Bank Levy Act, among other things the European Central Bank recommends the Ministry of Finance:
- to separate the proceeds from the levies from general budgetary resources, as the use of the proceeds for other purposes cannot be ruled out, and
- the introduction of rules on the use of proceeds from the fund for resolving crisis situations in the banking sector. According to the ECB, these rules help limit the moral hazard in connection with the use of the proceeds from the levy.
Revision proposals of SBA concerning the draft law:
- We propose the establishment of a specialised fund that would administer paid levies and at the same time establish a clear and detailed legal arrangement and rules for the use of selected levies. The special resolution fund could also possess the nature of a public fund, which would be part of public finances.
- We propose reducing the levy rate to 0.02%, because compared with the rates of other countries that have already introduced a similar legal arrangement the levy rate here is excessively high, this accounting for the fact that in Slovakia there was no need to release any funds to bailout or prop up the banking sector during the financial crisis and as banks continue to act very conservatively and prudently. The rate of 0.02% is the base rate applied in Germany, i.e. in a country that was forced to rescue banks during the financial crisis. It is illogical if in Slovakia, where banks didn’t need bailing out, a higher levy is applied than in those countries that had to rescue banks.
Documents for downloading:
Revision comments of SBA to the draft law
SBA document on the bank levy (Theme: Bank levies in the EU and in Slovakia)
Slovak Banking Association (SBA) is a leading financial association in the Slovak financial sector and the only association representing the interest of banks in Slovakia. The SBA has 30 members, comprising almost 100% of the Slovak banking sector. Among other things, the Association administers the activities of the permanent Arbitration Court , an independent and impartial body set up to preside over disputes arising out of commercial and civil legal relations, and the activities of the Banking Ombudsman. Since 1996 the SBA has been a member of the European Banking Federation (EBF), a member of the European Payment Council (EPC) and a member of the National Union of Employers in Slovakia (RÚZ).
[1] Technical details of a possible EU framework for bank recovery and resolution (viď: http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm )