ECB published an opinion (CON/2019/40) on a draft law from Slovakia that involves increasing the special levy on selected financial institutions. The proceeds of this special levy are state financial assets for covering costs related to the resolution of financial crises in the banking sector and protecting the financial stability of the Slovak banking sector; this includes the replenishment of the Deposit Guarantee Fund necessary for expenses due to the payment of compensation for unavailable deposits. The opinion was issued in response to a request from the Ministry of Finance of the Slovak Republic on a draft law amending Law No 384/2011 Coll. on a special levy on selected financial institutions and on amendments to certain laws. In its opinion, ECB has expressed certain concerns about the material adverse consequences of the increase in this levy and has recommended a robust impact assessment detailing the net benefits of the proposed changes.
In accordance with Law No 384/2011, the rate of the levy during the period from 2017 to 2020 is 0.2% of each bank’s liabilities reported in its balance sheet and 0% as of 2021. The draft law increases the rate of levy to 0.4% of each bank’s liabilities, as reported in the balance sheet, and does not provide for temporal limitation for the applicability of the levy. ECB has recommended that it is necessary to introduce a clearer separation between the extraordinary account created out of the levy proceeds and the general budgetary resources of the Slovak Government. ECB understands that the obligation of the banks to pay the bank levy is additional to their obligation to pay contributions to the Resolution Fund and the Deposit Guarantee Fund. ECB understands that the bank levy proceeds would serve as a funding backstop that is not covered by the resolution fund and for refinancing the deposit guarantee fund.
According to ECB, the draft law could have unintended and material adverse consequences on financial stability. The levy proceeds already constitute a significant share of bank profits, in addition to the contributions to the Deposit Guarantee Fund and the Resolution Fund. The proposed increase in the levy could disproportionately impact profitability of the banking system, with negative consequences for internal capital generation and lending. Moreover, removing the temporal limitation on the levy could have procyclical consequences. Therefore, ECB recommends the legislative proposal be accompanied by a robust impact assessment detailing the net benefits of the proposed changes. At a minimum, the draft law could maintain a proportionate temporal limitation for the applicability of the levy, in line with the impact assessment, to reduce ambiguity regarding the overall effects of the levy going forward.
Related Link: ECB Opinion (PDF)
Keywords: Europe, Slovakia, Banking, Special Levy, Resolution Fund, Deposit Guarantee Fund, Proportionality, CON/2019/40, Resolution Framework, Opinion, ECB
Previous ArticleBDE Publishes Circular on Accounting Regime of Credit Institutions
EBA published a report analyzing the impact of the unwind mechanism of the liquidity coverage ratio (LCR) for a sample of European banks over a three-year period, from the end of 2016 to the first quarter of 2020.
In response to questions from a member of the European Parliament, the ECB President Christine Lagarde issued a letter clarifying the possibility of amending the AnaCredit Regulation and making targeted longer-term refinancing operations (TLTROs) dependent on the climate-related impact of bank loans.
IASB started the post-implementation review of the classification and measurement requirements in IFRS 9 on financial instruments and added the review as a project to its work plan.
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions.
EBA published a report on the benchmarking of national loan enforcement frameworks across 27 EU member states, in response to the call for advice from EC.
FSB published a letter from its Chair Randal K. Quarles, along with two reports exploring various aspects of the market turmoil resulting from the COVID-19 event.
RBNZ launched a consultation on the details for implementing the final Capital Review decisions announced in December 2019.
The Trustees of the IFRS Foundation, which are responsible for the governance and oversight of IASB, have announced the appointment of Dr. Andreas Barckow as the IASB Chair, effective July 2021.
HKMA issued a letter to consult the banking industry on a full set of proposed draft amendments to the Banking (Capital) Rules for implementing the Basel standard on capital requirements for banks’ equity investments in funds in Hong Kong.
ESRB published an opinion assessing the decision of Swedish Financial Supervisory Authority (FSA) to extend the application period of a stricter measure for residential mortgage lending, in accordance with Article 458 of the Capital Requirements Regulation (CRR).