G20 scraps plans for universal bank tax

BUSAN, South Korea Sat Jun 5, 2010 7:25am EDT

1 of 2. U.S. Treasury Secretary Timothy Geithner speaks during a news conference at the G20 Finance Ministers and Central Bank Governors meeting in Busan June 5, 2010.

Credit: Reuters/Nicky Loh

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BUSAN, South Korea (Reuters) - The world's top economies scrapped plans for a universal global bank tax on Saturday, giving countries plenty of wiggle room over how to make banks pay for their bailouts in future.

Finance ministers from the Group of 20 countries ended a two-day meeting to review progress on a string of initiatives agreed last year to make the financial system safer and protect taxpayers from having to pay for bank rescues again.

Attempts to introduce a global bank levy were finally ditched in the face of opposition from Japan, Canada and Brazil whose banks needed no public aid during the worst financial crisis since the 1930s.

"There is no agreement to proceed with an ex ante bank tax," said Canadian Finance Minister, Jim Flaherty.

The G20 said it recognized there was a range of policy approaches and that it will approve a set of principles later this month in Toronto on how to protect taxpayers.

British Finance Minister George Osborne reiterated his pledge to introduce a UK bank tax regardless of what other countries do and will spell out his plans in a budget report on June 22.

"Different countries will do different things but to have it under the umbrella of the G20 is going to be helpful," Osborne told reporters.

Britain was forced to shore up the banking sector and rescue several individual firms.

BASEL BACKING

The meeting did not agree any new regulation or alter deadlines for implementing steps agreed last year.

But ministers sought to keep plans for tough new Basel III bank capital and liquidity rules on course for implementation by the end of 2012 despite deep-seated concerns among several countries.

"We are on track to deliver the proposals at the Seoul summit in November. Ministers are fully engaged in finding the right compromises," Financial Stability Board Chairman, Mario Draghi, told reporters.

Several finance ministers signaled that a lengthy phase-in for Basel III beyond 2012 was now inevitable.

Draghi, who overseas implementation of the G20's financial reform pledges, said Basel was not expected to take full effect by that deadline.

"The key thing is to start the implementation in 2012. Then we will kind of find out what are the most appropriate transition times," Draghi said.

Banks warn that piling on tougher requirements too soon will force them to raise fresh capital at the expense of being able to lend to aid economic recovery.

Draghi said two percentage points of higher capital requirements would halve the probability of systemic risk.

Osborne said there was "some room for variation" over a tougher definition of bank capital but "everyone understands this is the absolute central part of creating a safer and better regulated global banking system."

COMMODITIES TARGETED

The G20 also agreed to speed up introduction of measures to improve transparency, regulation and supervision of hedge funds, credit rating agencies, bank pay and off-exchange traded derivatives.

"We are also committed to improve the functioning and transparency of commodities markets," the G20 statement said.

Some policymakers have accused speculators of abusing commodities markets.

Draghi played down expectations that the G20 will usher in a slew of additional measures beyond what it agreed last year.

"We have a priority, it's to move forward on Basel III," Draghi said.

Despite the failure to make headway on a universal bank levy and slippage in full Basel III roll-out, policymakers noted that the United States is expected within weeks to approve the most sweeping reform of financial rules since the 1930s that will introduce the bulk of G20 reform pledges.

The European Union is also well advanced in adopting new rules on supervision and hedge funds, with a draft law on derivatives regulation due next month.

Elena Salgado, economy minister of EU president Spain said more EU regulation was needed for credit ratings agencies, which lacked transparency and accountability.

"To have a European credit ratings agency is another issue; perhaps it would be good, but it's something that cannot be done from one day to the next," Salgado told Reuters.

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Comments (8)
So banks can do as they please without any penalty. Geithner says they should stoke global growth… better knows as quantitative easing…. better know as printing money out of thin air… also called currency devaluation. Yes, it does indeed make sense why gold is at/near all time highs in the Euro and many other currencies including the US dollar. And from with Geithner just said, it will get worse for paper currencies and gold will be priced higher and higher.

Jun 05, 2010 7:30am EDT  --  Report as abuse
Anonmucker wrote:
No one has adequately explained why banks should be bailed out since even the suggestion seems to be an encouragement to avoid reasonable levels of risk aversion. It’s back to the too big to fail issue which implies a need for more stringent capital requirements and underwriting standards – not so severe as to strangle growth, but to prevent recklessness. The US economy has been based on inflation and a pyramid scheme in real estate for decades, although it was only investors and speculators who primarily benefitted while most struggled to keep up. I sincerely hope those days do not return, regards of attempts to reinflate the bubble.

Jun 05, 2010 10:14am EDT  --  Report as abuse
pilgrimson wrote:
How annoying that the US can’t dictate to the world any longer.

If there were such a bank tax, would the Congress steal the money out of the fund and spend it just like out of the Social Security trust fund, leaving nothing but IOU’s in its place?

Jun 05, 2010 11:42am EDT  --  Report as abuse
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