Washington, April 24: Proposals to hit banks around the world with new taxes to help pay for bailouts split world finance leaders.
Governments want to ensure that taxpayers will not be on the hook in the future if troubled financial firms have to be rescued with public money, as happened in the United States, Britain and other European countries during the credit crisis.
Britain and Germany insist banks should pay for their own rescues. France has said a tax on banks could make them safer.
“The countries that did experience the problems are far more committed to taking action,” said British Finance Minister Alistair Darling. “They want to see international agreement achieved quickly.”
The United States, which backs a broad levy, and other countries agree no bank should be considered too big to fail.
U.S. Treasury Secretary Timothy Geithner said the United States would go ahead and impose a levy on its banks even without global coordination.
But Canada, whose banks passed through the 2007-2008 financial crisis without government assistance, oppose a tax.
“There was no agreement on a global bank tax,” Canada’s finance minister Jim Flaherty said at the end of a meeting of the Group of 20 rich and developing economies.
“Some countries are in favor of that, some countries quite clearly are not. It depends whether a country has had to use taxpayers dollars to bail out banks for the most part.”
Without a clear agreement, the G20 asked the International Monetary Fund to do more work to ensure financial firms bear the burden of government rescues, address excessive risk-taking and promote a level playing-field.
To allay concerns that a global bank tax might punish banks that performed well during the financial crisis, the G20 told the IMF to consider “individual countries’ circumstances.”
The United States is trying to usher in new rules for the financial system. The White House and Democrats are pushing hard to rein in banks, create new rules for financial products and shed light on the opaque derivatives market.
On Friday, G20 officials urged completion of standards for clearing most over-the-counter derivatives through a central counterparty, which would assume the risk if one party defaults and avoid a repeat of the chaos of the near collapse and subsequent government takeover of American International Group Inc.
Countries also stressed coordinated oversight of hedge funds and credit rating agencies, as well a single set of high-quality global accounting standards.
Covering rescues, bolstering budgets
Ahead of the G20 meeting in Washington, the IMF proposed new taxes on banks worldwide in an effort to make financial services firms pay for their own rescues. One would cover the cost of future financial sector bailouts and the other would tax banks’ profits to bolster national budgets.
Many G20 countries were wary about having a single proposal for a problem that is not shared by all countries.
Those with conservative banking rules argue that meant their banks did not contribute to the financial crisis.
“The BRICs (Brazil, Russian, India and China) had the same position,” Brazil’s finance minister Guido Mantega said. “We think they are more appropriate for economies that had financial losses due to the action of banks or financial institutions. We did not have this.”
Argentina’s economy minister Amado Boudou highlighted the difficulties of implementing bank levies.
“It’s very difficult because it would create differences in different countries and different jurisdictions and maybe could create drastic inflows and outflows of capital,” he said.
Individual countries are struggling with their domestic tax proposals. Obama’s plan to tax financial institutions to recoup funds from the government’s bailout, raising $90 billion over a decade, received a tepid response this week from the chief tax writer in the Senate, a Democrat.
The financial services industry opposes the new tax. Wall Street lobby group the Securities Industry and Financial Markets Association has said the new taxes would burden economies emerging from the crisis.
–Reuters