Banks in Malta might have to pay an annual levy on their profits over and above normal tax under plans unveiled in Brussels, yesterday.
The controversial proposals, still to be agreed by member states, were spelt out by Commissioner Michel Barnier, responsible for the EU's internal market, and are intended to go into a new fund that would cushion the blow from a financial meltdown such as the one seen in 2008.
"It is not acceptable that taxpayers should continue to bear the heavy cost of rescuing the banking sector. They should not be in the front line. I believe in the polluter pays principle," Mr Barnier said when launching the proposals.
"We need to build a system ensuring the financial sector will pay the cost of banking crises in the future. That is why I believe that banks should be asked to contribute to a fund designed to manage bank failure, protect financial stability and limit contagion but which is not a bail-out fund. Europe must take a lead in developing common approaches and providing a model for cooperation, which could be applied globally," the French commissioner said.
Ironically, banks based in Malta that were spared any major exposure to the crisis largely because of their conservative investment strategies would still have to fork out money for the proposed fund.
In fact, the measure could hit banks in Malta particularly badly because they are hugely profitable. In their last financial year, considered to be a bad one due to the financial and economic crises, HSBC Malta declared a pre-tax profit of €71.2 million and Bank of Valletta's posted a profit of €53.8 million.
The funds raised would not be used for bailing out or rescuing banks but would ensure that a bank's failure is managed in an "orderly way and does not destabilise the financial system". This could include a bridge financing operation; total or partial transfer of assets and liabilities, and buying what are known as toxic assets, financial assets that become practically worthless through a dramatic fall in value.
Mr Barnier's proposals do not yet quantify the proposed banking levy because the Commission is still assessing the likely economic impact of the scheme. However, Brussels wants to move fast on the proposals.