Europe’s top bankers are discussing a proposal for a €20bn private sector European Recovery Fund, which could bail out failed banks in the event of another financial crisis.

Alessandro Profumo, chief executive of Italy’s UniCredit, believes such a fund could raise as much as €20bn ($25bn) of capital over a few years, providing a failed bank with the chance to revive itself in the commercial markets, without recourse to government bail-out financing.

“The fund will provide specific guarantees to support ailing banks to issue secured notes,” Mr Profumo writes in today’s Financial Times. The project will vie with other ideas for dealing with a future financial crisis – such as government levies and the forced conversion of unsecured debt into equity.

Mr Profumo, a seasoned banker and one of the industry’s most prominent voices in Europe, believes his proposal is superior. “The option for authorities to use the fund to stabilise one or a few large, ailing banks can assure the market that the crisis can be contained at an early stage and avoid a systemic event from occurring,” he argues.

He has already pushed his idea with other leading eurozone banks, including Deutsche Bank and Santander.

An ERF would run counter to some governments’ preference – such as in the UK, US, France and Germany – for imposing a state levy on institutions either as a hypothecated bank bail-out fund or as a boost to general coffers.

Proponents of the UniCredit idea argue it is a more realistic solution, given that the amounts to be raised by the levies – little more than a projected £2bn in the UK, for example – would be insufficient to rescue anything but a relatively small institution. It also has the merit of being a private sector solution, rather than a scheme that could have recourse to taxpayers as happened across the world in the recent financial crisis.

People close to UniCredit suggested the idea had been welcomed at Deutsche Bank, although senior Deutsche figures said the German bank’s preferred model for a crisis-time “funding resolution” chimed instead with the Institute of International Finance, the global banking lobby group, of which Josef Ackermann, Deutsche’s chief executive, is chairman.

The IIF said in a recent position paper that “a clear majority within the industry is of the view that an ex-post arrangement – that is, one in which the industry commits itself to provide funding after the event to meet any additional costs of a resolution necessary to secure systemic stability – would be the most practical and effective”.

An alternative “ex-ante” arrangement, such as that proposed by Mr Profumo, is seen by the IIF as posing a greater moral hazard. In other words, the very fact of having a prefunded safety net could encourage excessive risk-taking at banks because they would be assured of being bailed-out in the event of failure.

Santander is unlikely to support Mr Profumo’s initiative. It has consistently argued that bailing out failed banks is unwise.

One Spanish banker said: “We prefer neat and tidy resolution regimes that would drive stakes through the hearts of zombies.”