FACTBOX - Options for a global levy on banks

Dec 11 (Reuters) - The European Union increased pressure on
the International Monetary Fund on Friday to consider a global
tax on financial transactions, a so-called "Tobin tax", to limit
the risk of another economic crisis. [ID:nGEE5BA0FS]

The IMF is studying a range of options for a global levy on
banks, which would help to pay for recent and future financial
sector bailouts. It is due to report results of the study in
April to governments of the Group of 20 nations, which would
make any decision to impose a levy.

Here are options which the IMF is exploring, along with
ideas for bank levies being suggested in the U.S. Congress. (For
an analysis of the issue, click [ID:nGEE5AL0BG])

WINDFALL TAX

IMF head Dominique Strauss-Kahn has raised the idea of a
one-off tax on bank earnings. He called it a "possible windfall
tax for 2009, a one-shot thing".

The IMF's chief economist Olivier Blanchard said a windfall
tax might be levied on banks' assets rather than on profits.

Bank earnings in many countries have been recovering
strongly from the global crisis, which might make a windfall tax
feasible.

But governments may still feel the outlook for the financial
sector and the economic recovery is too uncertain to impose a
large windfall tax, especially since the tax could end up
diverting banks' money away from lending to corporations,
hurting employment.

A few governments are moving ahead unilaterally with a
one-off, windfall tax on bankers' bonuses. Britain announced
this week that banks operating there would be charged a 50
percent tax rate on employees' bonuses above 25,000 pounds
($41,000), raising an estimated 550 million pounds.

French Economy Minister Christine Lagarde said France
planned an "equivalent" tax.

FINANCIAL TRADING TAX

Blanchard told Reuters that the IMF was studying the
technical feasibility of a tax on banks' financial transactions.

However, Strauss-Kahn said in a Reuters interview that the
IMF was not putting together a proposal for such a tax because
it would risk being unworkable. This may indicate divisions
within the IMF over the controversial idea, which could hurt
business in financial centres such as London and New York.

A financial trading tax could be as low as 0.005 percent per
trade, G20 sources told Reuters.

But many bankers think a trading tax is unlikely to go ahead
because of opposition from the U.S. government. U.S. Treasury
Secretary Timothy Geithner said: "A day-by-day financial
transaction tax is not something we are prepared to support."

U.S. House of Representatives Speaker Nancy Pelosi said this
month that the idea of a tax on financial transactions "has a
great deal of merit" and would help raise much-needed revenue
for the U.S. government. [ID:nN03118277]

Her comments suggested the idea might find its way into a
House bill aimed at bringing down the U.S. unemployment rate
before the November 2010 congressional elections.

Representative John Larson, the No. 4 Democrat in the House,
has proposed a 0.25 percent tax on over-the-counter derivatives
transactions.

Representative Peter DeFazio is floating a bill that would
tax stock trades at 0.25 percent, options at the rate of the
underlying asset, and futures transactions, swaps and credit
default swaps at 0.02 percent.

It would exempt the first $100,000 of trades each year, and
the tax would be refunded for mutual funds and savings accounts
for retirement, education and healthcare.

An estimated $150 billion raised per year would go to
reducing the deficit and job-creating measures such as road
construction.

But analysts said such measures face long odds because of
opposition from prominent lawmakers and the Obama
administration. Proposals in the House of Representatives have
not so far won strong support from tax-writing legislators, and
may face an even tougher time in the Senate, where consensus is
harder to achieve.

INSURANCE LEVY

The IMF is also studying levying some form of mandatory
insurance fee on banks; the money could be used to build up a
fund that would conduct future bank rescues, relieving taxpayers
of the burden.

An insurance levy could resemble the bank deposit insurance
system already operating in the United States, where banks are
assessed premiums that pay for the Federal Deposit Insurance
Corp to guarantee the safety of deposits in member banks.

Many bankers think the insurance levy option is the most
likely to be adopted, partly because it could be differentiated,
with riskier investment banks paying the levy at higher rates
than conservative, retail-focused banks.

It would be difficult to introduce the levy, though; the fee
would have to be applied in the same way across countries, to
avoid giving the financial industry of a particular country an
unfair competitive advantage.

And the existence of an insurance fund might end up creating
"moral hazard", a sense among bank managements and investors
that they could take excessive risks because banks would be
bailed out if needed. Expectations that banks would be bailed
out by governments may have been one reason for the risk-taking
that led to the recent financial crisis.
(Compiled by Andrew Torchia)