The European Commission on Wednesday proposed that each European Union government levy a tax on its banks and use the proceeds to create a fund dedicated to ensuring the "orderly failure" of troubled banks.
The proposal would create a European network of such funds that would follow the same rules. However, the commission, the EU's executive arm, did not provide details on how high the tax should be.
But the commission said the funds should not be used to pump capital into banks or for other measures that could benefit bank shareholders and creditors.
The commission also wants to prevent the funds from being tapped for general public purposes, a provision that the U.K. and some other EU governments oppose.
Michel Barnier, the EU's commissioner for financial regulation, plans to discuss the idea with leaders at a meeting of the Group of 20 industrial and developing nations next month in Toronto.
The fund proposal will probably be included in legislation, expected early next year, to ensure that EU governments have the powers to "resolve" an ailing bank. This includes changing management, wiping out shareholders, imposing discounted asset values or "haircuts" on creditors, orchestrating bank mergers and paying for the whole process without relying on taxpayer money.
The idea is to maintain the crucial functions of a weak bank without forcing governments to choose between allowing a bank to go bankrupt, at great economic cost, or bailing out a bank through repeated recapitalizations using taxpayer money, as governments did throughout the financial crisis.
"Without these funds, what we will see is an uncontrolled falling-apart of large financial institutions, which can have disastrous secondary effects," Barnier said at a press conference.
The funds would be used to pay for the costs of restructuring, such as setting up a bridge bank that would temporarily own and operate a failed bank to preserve its vital functions.
The commission expects some opposition from EU national governments to its proposal that the funds be reserved for restructuring costs, particularly at a time when EU governments are desperately searching for revenue to shrink their large budget deficits.