SCENARIOS – G20 efforts to agree on a bank levy

By Reuters Staff
March 31, 2010

By Huw Jones

LONDON, March 31 (Reuters) – France backed Germany’s plans for a bank levy on Wednesday to boost momentum for a global deal among the G20 group of leading countries later this year.

But national differences are emerging over details and some countries oppose the principle of a levy or tax.

NEXT STOP WASHINGTON

The IMF was asked last November to put forward proposals for making banks contribute towards bailouts and will present its recommendations to G20 finance ministers in Washington on April 24-25

IMF Managing Director Dominique Strauss-Kahn has said a “Tobin tax” on financial transactions is unworkable and he would propose some form of levy.

The G20 summits in Toronto in June and Seoul in November will then try to hammer out a global bank levy deal.

TOBIN TAX DEAD — AGAIN

A Tobin style tax on financial transactions — named after the U.S. economist who came up with the original idea in the 1970s but was never adopted globally — was rejected last year by the United States, effectively sealing its fate.

Without the backing of one of the world’s top money centres, banks could simply move there to avoid a Tobin tax elsewhere.

WHO IS BACKING A LEVY?

U.S. President Barack Obama has already proposed a domestic bank levy of 0.15 percent annual on a bank’s total assets, raising up to $117 billion to “recover every single dime” paid by taxpayers for rescuing banks.

It would last for 10 years or as long as necessary to recoup taxpayer money spent.

Britain, which had signalled support for a transaction tax, has shifted towards a systemic risk tax that would cover all financial institutions where appropriate.

Germany is proposing a bank levy linked to risks posed which would raise about a billion euros annually.

On Wednesday, France swung behind Germany — though still kept the door open to a transaction tax.

IS A GLOBAL LEVY NOW IN THE BAG?

Not quite. Canada has vowed to block any global deal on a bank tax, saying none of its banks needed a bailout.

Australia is also thought to be reticent and it is not clear what some of the big Asian and Latin American G20 members think.

Even backers like Britain say a levy must be internationally coordinated otherwise banks will find ways round it.

NO MORE MORAL HAZARD?

Up to a point. Although the principle of a levy is gaining heavyweight backing, major differences have emerged over detail.

The U.S. proposal is for a levy to recoup the money its taxpayers have spent so far on bailing out banks which, once repaid, would expire.

Britain and France want the funds raised go to the national budgets and not used as an “insurance policy” to build up a fund for future bailouts which could spur more reckless behaviour by banks, knowning there are special funds to bail them out.

Germany — like the system being set up in Sweden — would create a special fund for bailouts and wants a European solution. The EU’s financial services chief, Michel Barnier, has would like to see a European resolution fund that makes the “polluter pay”.

(Reporting by Huw Jones, editing by Mike Peacock) ((Reuters messaging: huw.jones.reuters.com@reuters.net; + 32 2 287 6817; huw.jones@thomsonreuters.com))

No comments so far

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/