EU plan seeks bank levies to pay for future collapses

BRUSSELS, Belgium — European Union leaders are set to back a European levy on banks to help pay the costs of future collapses, according to a draft text seen by The Associated Press that will be made public today after a summit meeting.

They will also urge the United States and others to introduce a bank fee at next week’s Group of 20 meeting to maintain “a worldwide playing field.”

Leaders do not say what kind of charges should be imposed on banks and what it would pay for, calling on the EU’s executive to draw up plans and assess the impact by October.

“A levy on financial institutions should be introduced to ensure that they contribute to the cost of crises,” the draft statement says. “Further work is urgently required on its main features.”

European countries are separately working on bank levies to help pay for bailouts. Sweden set one up in 2008, requiring its 150 financial institutions to pay annual fees of some 0.018 percent of their liabilities. Germany is also considering a similar program to raise up to $1.48 billion a year to pay for financial rescues.

Governments pledged some 13 percent of their economic output on bailing out banks in 2008 and 2009, according to EU estimates.

The European Commission suggested a different kind of levy last month to create a “resolution fund.”

It says the money raised shouldn’t bail out banks but could cover the costs of unwinding them - such as financing for bridging loans, transferring assets, creating a “bad bank” to take on problem assets and paying for lawyers, administrators and advisers.

Fees charged by law firms and others working on the messy unwinding of Wall Street investment bank Lehman Brothers have reportedly amounted to hundreds of millions of dollars.

EU leaders say a levy “should be part of a credible resolution framework” - which does not clearly state whether the fee should pay for a resolution fund or merely be part of a wide package of rules to deal with insolvent banks.

British officials are cool to the EU proposal, claiming it could create moral hazard - essentially allowing banks to expect state help when they get into trouble. They also want any money raised from a levy to go back to government coffers, instead of a separate fund.