ECB Issues Opinion on A Draft Law Under Resolution Regime in Slovakia
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
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