September 17, 2013 / 9:37 AM / in 4 years

France eyes banking tax to bolster municipal loan fund-Agefi

PARIS, Sept 17 (Reuters) - France may introduce a new tax on banks, based on the size of their balance sheets, to bolster lending to cash-strapped municipalities and local entities, newsletter Agefi reported on Tuesday.

The French government has been grappling for ways to fill the financing void left by the collapse of Franco-Belgian bank Dexia, which once dominated that market.

Dozens of towns and cities across France are fighting Dexia over an estimated 11 billion euros in risky structured loans that went sour after the financial crisis, saddling them with double-digit repayment rates and in some cases pushing mayors to go on debtors’ strikes.

The French government said in June that it would set up a special fund to help such local authorities, adding at the time that the fund would be partly funded by the banking sector but without entering into further detail.

The French banking federation had no immediate comment on the story about the new tax, which cited unnamed sources.

The tax would amount to 50 million euros ($66.76 million) a year, making it relatively mild compared with some of the other levies the banks pay. Those include a French government tax on bank balance sheets aimed at penalising bank risk - expected to total 800 million euros this year - and a separate tax to shield taxpayers from the cost of rescuing failed banks, expected to total 1 billion in 2020 alone, Agefi said.

The fact that the tax is based on balance sheets rather than amount of municipal loans outstanding would mean that France’s largest bank, BNP Paribas, would be hit with a relatively large bill even though it has just a 1.3 percent share of the municipal lending market, the newsletter said.

BNP Paribas officials had no immediate comment. ($1 = 0.7489 euros) (Reporting by Christian Plumb, Lionel Laurent and Alexandre Boksenbaum-Granier; Editing by Sophie Walker)

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