Taxing EU bank windfalls is job for governments

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A symphony of light consisting of bars, lines and circles in blue and yellow, the colours of the European Union, illuminates the south facade of the European Central Bank (ECB) headquarters in Frankfurt, Germany, December 30, 2021. REUTERS/Wolfgang Rattay

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LONDON, July 4 (Reuters Breakingviews) - It’s been a while since the European Central Bank worried about lenders making too much money. Yet the Frankfurt-based body is examining how to prevent banks from pocketing a windfall when it begins hiking interest rates later this month, the Financial Times reported on Sunday, citing three people familiar with the plans.

At issue are special facilities the ECB started extending to the banking sector in September 2019. The three-year loans came with the same negative interest rate the central bank imposed on deposits, so banks could not make money by parking the funds with the ECB. However, this will change when rates rise. Morgan Stanley analysts estimate banks could earn between 4 billion euros and 24 billion euros this way.

The risk of arbitrage does exist. Indeed, banks took advantage when the ECB pushed the rate on the loans to minus 1% between 2020 and 2022, before reverting to minus 0.5% in June. But deciding whether the bonanza is unseemly is a political choice. Banks will pay corporate tax on their extra profits. It’s up to governments to decide whether they should hand over a larger chunk. (By Pierre Briançon)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Peter Thal Larsen and Oliver Taslic

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