ECB implicitly endorses the tax on banks, warns on risks

The European Central Bank (ECB) has submitted its opinion on the so-called ‘tax on greed’ (tax on bank assets) introduced by the Government, without explicitly mentioning a negative opinion, which implies the acceptance of the Emergency Ordinance.

In a letter published Thursday, signed by ECB President Mario Draghi, points to some risks that could be highlighted depending on the banks’ reactions, hotnews.ro reports.

“The decisions may prompt the banks to become too permissive in terms of credit standards in order to reach the credit targets. At the other extreme, in an attempt to reach the targets of lowering the margins, banks can disproportionately reduce their lending to high-risk borrowers, for example SMEs that rely solely on bank lending,” the document reads.

The ECB notifications are advisory in nature but the Treaty on the Functioning of the EU sets a framework for consultation of the ECB by national authorities.

In February 2019, the ECB said that the Romanian government should have consulted the European Central Bank before approving a widely criticised new tax on bank assets, which could have a material impact on financial stability.

“The ECB considers this non-consultation to be a case of non-compliance by the Romanian authorities with the duty to consult the ECB on draft national legislation,” the bank said in a February 5 letter sent to Finance Minister Eugen Teodorovici.

The Social-Democrat government introduced the bank tax and other measures in December through an emergency ordinance, with no impact assessment or public debate. It billed the move as a way to cap borrowing costs, ahead of two election years.

BNR warned at the time this is an attack on its independence.