G-7 Considers Levy to Force Banks to ‘Bear Cost’ of Failure

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G-7 Considers Levy to Force Banks to ‘Bear Cost’ of Failure



By Gonzalo Vina and Mark Deen

Feb. 7 (Bloomberg) -- Group of Seven finance ministers moved closer to ensuring banks cover more of the cost of financial crisis after the recent turmoil saddled taxpayers with trillions of dollars in costs and liabilities.

The G-7 officials meeting in Iqaluit, Canada, continuing talks that started last year, signaled they are rallying around to introduce a levy on banks if it can be applied worldwide.

“There is a joint effort to coordinate on global bank rules and possibly issue a levy,” French Finance Minister Christine Lagarde told reporters yesterday after the talks with G-7 colleagues. “We were all in agreement. It would have to be a universal instrument in order to avoid arbitrage.”

With government and central bank support for the global financial industry topping $11 trillion, according to the Organization for Economic Cooperation and Development, policy makers want banks to shoulder more of the costs of crisis after rescuing banks from New York-based Citigroup Inc. to Royal Bank of Scotland Group Plc in Edinburgh. The International Monetary Fund will recommend to the Group of 20 in April the best way to proceed.

“We agreed to work together to make sure financial institutions bear the costs” of financial turbulence, Canada’s Finance Minister Jim Flaherty told reporters after chairing the two days of talks.

Taxpayer Fund

As the world economy starts to emerge from the worst financial crisis since the Great Depression, G-7 members are seeking to recoup taxpayers’ funds used to prop up banks, and leaders have called for lenders to repay aid as some of them begin to pay out bonuses again. U.S. President Barack Obama last month announced a levy on financial firms with assets of more than $50 billion.

“We all share a deep commitment to try and move forward and reach agreement on a strong set of comprehensive financial reforms,” U.S. Treasury Secretary Timothy F. Geithner told reporters.

Geithner said G-7 nations will continue efforts to agree on a set of common capital requirements for large institutions by the end of this year at a time when the U.S. and U.K. have taken unilateral steps to regulate banks.

Capital should be increased, better allocated and enough to absorb losses, Lagarde said. It “should be organized in such a way that it doesn’t slow down the economic recovery that’s under way,” she said.

The G-7 also pledged common standards on all aspects of banking regulation to ensure a “strong multilateral level playing field across these institutions and across global markets,” Geithner said.

Insurance Fund

The officials debated the threat of banks taking on too much risk if an insurance fund is established, a German official told reporters.

Financial institutions received $1.56 trillion in capital injections, $5.21 trillion for asset purchases and guarantees and $4.64 trillion in debt guarantees, according to a study published last month by the Paris-based OECD.

An insurance program was one of four proposals put forward by U.K. Prime Minister Gordon Brown in November. He also said the G-20 should consider a so-called Tobin tax on financial speculation, a suggestion the U.S. opposed.

Sweden created a fund financed by banks in 2008 to help safeguard its financial system. Swedish banks are required to make annual payments to the fund. The Swedish government injected 15 billion kronor ($2 billion) into the fund when it was set up, as well as cash previously held in Sweden’s deposit guarantee fund.

Fees from the banks and interest on the money in the fund means it will swell to 150 billion kronor, or 2.5 percent of Sweden’s gross domestic product, by 2023, according to government estimates.

To contact the reporter on this story: Gonzalo Vina in Iqaluit, Canada at gvina@bloomberg.net
Last Updated: February 7, 2010 00:01 EST

bobcat

口吻有点像当年八国联军，凭什么要中国听G7的？