* Bank tax to be replaced with principle to shield taxpayer
* Renewed focus on pushing through Basel III deal by Nov
* Banks may get early steer on Basel requirements
* Ground rules for “too big to fail” proposals in the works
(Repeats to more subscribers)
By Huw Jones and Louise Egan
LONDON/OTTAWA, June 18 (Reuters) - Group of 20 countries will formally bury plans for a single global bank tax next week and focus on advancing tough new capital rules and ways of winding up failing institutions without taxpayer help.
G20 finance ministers decided earlier this month in South Korea to give up on a common levy, and their leaders will instead agree that the financial sector should pay for its own bailouts in future, leaving countries to chose how.
Proposals from the International Monetary Fund for a levy have got nowhere as countries like Japan, Canada and Brazil argue their banks needed no tax-funded bailouts in the crisis.
IMF First Deputy Director John Lipsky said this week that leaders at the Toronto G20 summit on June 26-27 won’t agree a one-size-fits-all bank tax but will back the principle that the financial sector should pay for bailouts.
Japan says it already has measures in place to fund financial sector failures.
“So we don’t think there should be universal rules but rather measures that each country can take depending on each case,” said Yoichi Suzuki, director-general of economic affairs at Japan’s foreign ministry.
EU leaders agreed this week to press ahead with a bloc-wide levy even though the chances of a global deal are dead.
“I think when it comes down to the crunch, we all agree that the likelihood is that implementation -- and it’s a good thing -- will be left to countries individually,” said Daniel Schwanen, an economist at the Centre for International Governance Innovation in Waterloo, Ontario.
BASEL III CLARITY
Policymakers and regulators will be relieved that the divisive levy issue will no longer take up so much G20 airspace.
Toronto will find it easier to focus on pushing through the Basel III reform to beef up bank capital and liquidity rules, seen as the group’s core response to the crisis.
The package is not due to be finalised until later this year and endorsed by G20 leaders in November at a summit in Seoul with implementation formally by the end of 2012.
Toronto could agree to releasing information about what that final package will look like so that banks have no excuses not to begin topping up capital as profitability returns.
The feeling is that by giving earlier clarity on Basel coupled with Europe’s plans to publish bank stress test results, key uncertainties hanging over markets will be eliminated.
This, along with a longer phase in of Basel would also help leaders to neuter complaints from banks that Basel is being rushed through, leaving too little time to raise fresh capital.
Nancy Hughes Anthony, president and chief executive of the Canadian Bankers’ Association, said banks will listen for hints as to how much of a phase in period there will be for Basel.
“My hope is that this summit will build confidence that the reform process is ongoing, it’s not going to get sidetracked or hijacked by a bank tax concept and that we will be continuing on a process that people feel they have confidence in, that’s the most important thing,” she added.
The Toronto summit is also likely agree formal guidance for regulators drawing up recommendations on how to deal with the thorny “too big to fail” issue so that ailing banks can be wound up quickly and no longer assume governments will bail them out.
SAME HYMN SHEET
Toronto will be an opportunity for leaders to reinforce the need for global coordination in rule making after Germany roiled markets with its unilateral ban on some types of derivatives.
“I’m sometimes worried about a loss of momentum, now leaders are losing some momentum to do things together at the global level,” IMF head Dominique Strauss-Kahn said this week.
G20 countries are making progress in turning regulatory pledges made last year into national laws but divergences appear inevitable, raising the prospect of market distortions.
The United States is on the point of approving the most sweeping reform of Wall Street since the 1930s which may trigger structural changes at banks that the EU has already rejected.
Some say fears over divergences may be overdone.
“There was an uneven playing field to start with and if anything, the field will be more even at the end of this process ... There will be some leveling in terms of transparency and standards,” Schwanen said.