Compensation for taxpayers

The instruments for financial market regulation, said Noyer, had to be embedded in a macroeconomic framework. This would mean among others that a way had to be found as to how one had to deal with so-called system-relevant financial institutions in future. These major banks, which are “too big to fail” – that means they are so big that their collapse would endanger the economy as a whole – had to be rescued with taxpayers’ money as they were in danger of collapsing by the dozens. Noyer is not adverse to these banks paying compensation and says: “It doesn’t seem unreasonable to me that the state, when it finds that these rescue operations are associated with significant net costs for the taxpayer, want to impose a retrospective levy on the banking system in order to be able to compensate the taxpayer.”

Moral Hazard through bank insurance?

In addition, Christian Noyer addressed the issue whether bank insurance would make sense. A list of banks, which due to their inbuilt risk would be subject to paying a contribution into an insurance pot, is in his opinion not sensible for two reasons. On the one hand, it would hardly be possible to prepare a complete risk profile for all banks. On the other hand, insured banks were obviously subject to a Moral Hazard problem. This would mean that the willingness to take risks by bankers would become even greater, if they felt that they were covered by insurance. In view of the fact that system-relevant banks always have to be rescued, hence can rely on the state as their insurance, this argument by Noyer is not here nor there. It would be necessary to fundamentally question the right to exist of “too big to fail” institutes.