LONDON/WASHINGTON Feb 16 World leaders want
banks and financial firms to pay up for government
interventions -- past and future -- to stabilize the
international financial system. While details are sketchy, some
form of bank balance sheet tax appears to be gaining ground.
Bank tax proposals vary widely, with global coordination
seen as crucial, but hard to attain as ever, with all eyes on
an upcoming International Monetary Fund report due in April.
Any levy that might result must dovetail with strategies
for tackling the "too big to fail" issue, related moral
hazards, resurgent banker bonuses and capital standards.
British Prime Minister Gordon Brown said last week he
expects the G20 to agree on a bank levy this year. The G7
called for one at its Feb. 5-6 meeting in Canada.
But basic questions remain. Would it be temporary or
permanent? Is it chiefly about recouping money spent in the
credit crunch? Or is the goal to impose a permanent "insurance"
premium to build up funds for future rescues?
Below are the main ideas being debated and a look at how
likely they are to win broad support.
BALANCE SHEET TAX
U.S. President Barack Obama has called for a levy of 0.15
of a percentage point on the balance sheets of firms with
assets over $50 billion to recoup taxpayer bailouts. It would
raise $117 billion, but would need Congressional approval.
This month the G7 called for closer study of a UK proposal
for a bank levy to cover the cost of the 2008-2009 bailouts.
Sweden is imposing a direct levy on bank loans to recoup
$10.6 billion from its banks for a financial crisis fund.
Britain's opposition Conservatives, who are widely expected
to return to power at national elections this year, have voiced
support for the Swedish idea if applied globally.
Some members of the European Parliament back forcing banks
to pay into an emergency fund to cope with future crises, a
document seen last week by Reuters showed. But it is far from a
done deal and would need support from EU states to become law.
In a report on policing banks, the lawmakers expressed
support for a European Financial Protection Fund to protect
savers, banks in difficulty and the broader market.
The report calls for financing "through contributions from
these institutions, debt issued by the fund or in exceptional
circumstances through contributions made by the affected member
states." It proposes that payments into the fund from banks
replace those made to national deposit guarantee schemes.
NONBANK DISSOLUTION FUND TAX
The U.S. House of Representatives has approved creating a
$200 billion fund to help pay for liquidating insolvent,
nonbank financial firms through bankruptcy or receivership.
This "dissolution" process would resemble how the U.S.
Federal Deposit Insurance Corp. currently dismantles insolvent
banks, a process that has worked well for decades.
The new fund would get $150 billion from fees charged to
firms with more than $50 billion in assets, with another $50
billion from borrowing from the U.S. Treasury Department.
The Senate is debating a similar approach that puts a
greater emphasis on bankruptcy and assesses fees against firms
only after a rescue has taken place, not before.
The FDIC's well-established deposit insurance fund, in
place since 1934, would continue. But under the House bill, the
fees it charges would become risk-based, relieving the burden
shouldered by small banks for maintaining the fund.
Some countries like Germany have called for a financial
transactions tax, sometimes dubbed a "Tobin Tax," named after
economist James Tobin.
Tobin in the 1970s proposed a tax on cross-border foreign
exchange transactions to curb speculation and raise large sums
for development in poor countries threatened by declines in
A transaction tax was among ideas put forward by Brown at
the G20 summit late last year in Pittsburgh.
Transaction taxes face an uphill battle in the United
States amid opposition from powerful financial interests that
hold substantial sway in a politically gridlocked Congress.
The U.S. House is eyeing a pair of proposals to slap a 0.25
percent tax on over-the-counter derivatives transactions and
stock trades, but Senate support for this looks unlikely and
the Obama administration is skeptical.
Just months after being bailed out by taxpayers, banks are
again paying executives multimillion-dollar bonuses, angering
the public and giving political momentum to bonus taxes.
Britain has imposed a 50 percent levy on large bank
bonuses. France's lower house of parliament has passed a bank
bonus tax amendment. A parliamentary commission in France's
Senate on Feb. 10 voted to broaden the banker bonus tax.
The United States, where bankers take home by far the
world's largest paychecks, has not yet followed suit.
Last week another Democrat in Congress proposed a tax on
bonuses aimed at getting back government bailout money. The
proposal would impose a 50 percent tax on cash and stock
bonuses of more than $25,000 at bailed-out firms.
There is a similar proposal in the U.S. House, but it is
unclear how much backing either one will get amid intense
opposition by the banking industry and Wall Street.