In the current context of high inflation and economic slowdown, and with the possibility of recession looming, it is more important than ever for savings and retail banks to maintain their solvency. In this regard, the recent decision by several EU countries to impose new taxes on the banking sector will further reduce its ability to lend to businesses and private individuals.

European savings and retail banks played a key role during the Covid-19 pandemic, helping to support businesses and households during the shutdown and its aftermath, while cooperating closely with the authorities to avoid a credit crunch. They have also been publicly credited in many jurisdictions as an important part of the solution to post-pandemic economic recovery.

While the effects of the Covid-19 pandemic are still being felt, the EU economy is now facing a new crisis stemming from supply chain shortages and the war in Ukraine, where savings and retail banks continue to support their customers and economic activity in general. In addition, they are actively helping Next Generation EU funds reach the real economy by providing additional financing through their extensive network of branches covering the whole of the EU and through their expertise in risk assessment.

In the current context of high inflation and economic slowdown, and with the possibility of recession looming, it is more important than ever for savings and retail banks to maintain their solvency. In this regard, the recent decision by several EU countries to impose new taxes on the banking sector will further reduce its ability to lend to businesses and private individuals. These sector-specific taxes are discriminatory and unjustified, as the expected rise in interest rates is unlikely to generate windfall profits in the banking sector (they may even decline if non-performing loans start to grow). In fact, marginally higher rates simply represent a return to normal after many years of very low profitability due to an environment of negative interest rates, which, in turn, has also negatively affected shareholder returns. These new taxes have also placed financial institutions in a difficult situation vis-à-vis their supervisors, as the requirement not to pass on their cost to customers is contrary to EU law (the "EBA Guidelines on Lending" state that the price of loans should include all costs borne by banks, including taxes).

A tax on the banking sector may also undermine the social work performed by savings and retail banks. Social responsibility is a core value of our members; towards its customers, employees, communities and the environment. In this context, policymakers should carefully consider the negative impact of taxation on banking foundations that have historically engaged in investing in local communities, fighting poverty and helping the most vulnerable groups in society.

The EU financial sector already contributes significantly to EU national budgets under the current tax framework, and the ESBG believes that what is needed in these uncertain times is a strong and competitive retail banking sector in Europe that continues to fulfil its key role as a provider of credit to businesses (especially SMEs) and households. Therefore, any measures that could weaken the recovery of the EU economy should be carefully considered.

Finally, we also caution against the risk of a fragmented tax system within the EU and call for greater tax harmonisation between EU countries. Additional taxation at national level undermines the level playing field by distorting competition in the EU internal market. A particular source of distortion arises from shadow banking activity (for example, hedge funds) and other non-bank financial actors (for example, large technology companies or credit unions) which are generally outside the scope of the extraordinary taxes applied to the banking sector. For this reason, we believe that uncoordinated national initiatives in the field of taxation should be avoided at all costs, in order to provide the necessary conditions for a fair and uniform distribution of financial services to European citizens and businesses; especially to SMEs.