Q+A - How could a global levy on banks work?

ST ANDREWS, Scotland, Nov 8 (Reuters) - Britain urged world governments on Saturday to consider a levy on banks to fund future bailouts, though there was little sign of the consensus needed to put the idea into practice. [ID:nL7169721]

HOW WOULD IT WORK?

Not clear. The International Monetary Fund will study the matter and present options next April for the Group of 20 nations to discuss.

Several ideas are being floated including a tax on financial transactions and a sort of "insurance fee" which banks would pay, perhaps into a global fund that would be tapped to help a bank in trouble.

The IMF has said banks could likely find ways around a transaction tax, and that a "windfall tax" or other longer-term form of levy might be better.

IMF managing director Dominique Strauss-Kahn told Reuters on Sunday that his organisation was exploring the idea of an insurance fee. [ID:nL8266848]

WHAT SIZE OF LEVY WOULD BE IMPOSED?

Some G20 officials say the rate of a tax would be very low, perhaps around 0.005 percent of each transaction.

But officials also say the amount collected should be high enough to cover the costs involved, to avoid taxpayers having to stump up yet more money.

Estimating these potential costs would be extremely difficult technically, and politically controversial.

WHO SUPPORTS THIS AND WHO IS AGAINST?

For fear of damaging national financial sectors, governments would probably not be willing to introduce a levy unless it were imposed simultaneously in all major financial centres.

France, Germany and the European Commission have previously said they would support the idea as long as the levy was introduced globally.