By Huw Jones
LONDON (Reuters) - Banks in the European Union could end up paying annual contributions to an industry rescue funds by tapping government support for coronavirus-hit companies, lawmakers said on Tuesday.
The Single Resolution Board (SRB) ensures that banks in the euro zone have enough funds to avoid taxpayer bailouts if they collapse.
Banks are required to issue MREL, a form of debt that can be "bailed in" or written down to replenish burnt out capital, and contribute to a fund for shielding taxpayers in a crisis.
SRB Chair Elke Koenig came under fire from lawmakers in the European Parliament's economic affairs committee on Tuesday after saying there would be no relief on annual contributions despite banks lobbying for relief during the pandemic.
The SRB board has decided that 9.1 billion euros ($9.86 billion) would be collected from 3,066 banks this year to bring the fund's total to 42 billion euros, she said.
The final target is 60 billion euros by the end of 2023.
Banks are central to distributing government-backed credit and other relief measures to keep companies and households afloat in the pandemic.
Francesca Donato, an Italian member of the committee, said the SRB could have suspended contributions this year to avoid banks cutting lending.
Strict application of SRB rules could mean new credit for relieving the pandemic ending up in contributions to the fund, Donato said.
Koenig said legislative changes would have been needed to offer relief on contributions and would have put a heavier burden on banks next year.
Banks have begun making huge provisions for expected losses on loans as a deep recession beckons but so far the sector has remained resilient, Koenig said.
As a last resort, the SRB can allow public funding for injecting "precautionary capital" into a lender that is temporarily struggling.
"Precautionary recapitalisation is valid tool but it cannot and should not be turned into a bail out in disguise," Koenig told lawmakers.
She was asked if the SRB could cope with two major banks like Deutsche Bank (DE:DBKGn) and a big Italian bank failing at the same time.
"I think are we ready to deal with one or more major banks failing. I can only answer yes," she replied.
Major banks have built up resilience through their MREL buffers, but there is still no European deposit insurance scheme or credible solution for liquidity when banks are shuttered, she said.
"Looking at the unprecedented measures taken so far, if we come to this problem, we also find a solution for this... I think we will get there."
