G7 wants banks to pay for rescue, details pending
IQALUIT, Canada (Reuters) - The idea of a global tax on banks to recapture bailout costs gained ground on Saturday, boosted by the Obama administration's latest proposals, but there was no agreement on a specific design.
Finance ministers and central bankers from the Group of Seven rich nations called for closer study of a UK proposal for a bank levy to cover the cost of the bailouts of 2008 and 2009 that ran to hundreds of billions of dollars.
The ministers, meeting in a remote town in Canada's Far North, said any tax that result must be internationally coordinated and avoid choking off world economic recovery. Further details are unlikely to emerge for weeks.
The International Monetary Fund is compiling a report, due in April, on options for requiring banks to "make a fair and substantial contribution" toward bailouts. The IMF report was requested in September by the Group of 20 nations.
The G20, a more broadly based organization that is seen as supplanting the G7, will next meet in June in Toronto.
"It was generally agreed that the banks will have to pay for crisis costs," said German Finance Minister Wolfgang Schaeuble at the G7 meeting in tiny Iqaluit, Canada.
Canadian Finance Minister Jim Flaherty said officials agreed that financial institutions should "bear the costs of their contributions to those crises."
French Economy Minister Christine Lagarde said, "We were all in agreement that it had to be a universal taxation or universal levy or instrument to avoid the risk of arbitrage."
Talk of a bank tax has swirled for months since governments stepped in with massive taxpayer aid to stabilize the financial system amid the worst capital market crisis since the 1930s, with the exact targets for taxation varying.
Britain announced a 50 percent levy on large bonuses at banks to help cover the cost of the crisis. Sweden is imposing a direct levy on bank loans to recoup roughly $10.6 billion from its banks to go into a financial crisis fund.
IMF head Dominique Strauss-Kahn has raised the idea of a one-off tax on bank earnings to recoup taxpayer bailout money.
British Prime Minister Gordon Brown gave the bank tax idea a boost in November when he called for considering it "with urgency." That swung Britain's position on the question into line with France and Germany. G20 officials said the levy mentioned by Brown would apply to financial transactions or bank earnings and be small, perhaps around 0.005 percent.
The United States, whose support would be key to any decision, was decidedly cool throughout 2009 to bank tax ideas, including Brown's. But the Obama administration has recently shifted its stance amid growing public anger over the bailouts, surging bank profits and a return to sky-high banker bonuses.
Obama in mid-January proposed that banks pay up to $117 billion to reimburse U.S. taxpayers for bailouts, and slammed bankers for their "massive profits and obscene bonuses."
He called for a levy of 0.15 of a percentage point on the balance sheets of firms with assets over $50 billion.
Large financial firms that would be hit by a tax are watching closely, said Scott Talbott, an executive at the Financial Services Roundtable, which represents giants such as Citigroup and JPMorgan Chase & Co.
"We agree that taxpayers should be made whole and financial institutions stand ready to pay their share of the costs. Any repayment should be timely and proportional," he said.