November 30, 2009 / 11:07 PM / 10 years ago

IMF studying bank transaction tax option - Lipsky

WASHINGTON, Nov 30 (Reuters) - The International Monetary Fund is studying all options, including a tax on banks’ financial transactions, to help countries recoup some of the billions of taxpayers’ dollars spent on banks during the recent market crisis, a top IMF official said on Monday.

In a speech in Vancouver, IMF First Deputy Managing Director John Lipsky said the IMF study would broadly look at ways to pay for recent and future financial sector bailouts, including the option of a Tobin tax on banks’ financial transactions, he said. The tax is opposed by some nations, including the United States.

Other possibilities include a form of mandatory insurance fee on banks which would be used to build a fund for future crises.

IMF chief Dominique Strauss-Kahn said in an interview with Reuters on Nov. 8 the fund was not considering the Tobin tax because such a tax would risk being unworkable. [ID:nL8266848]

Since then, IMF officials including the Fund’s chief economist Olivier Blanchard have emphasized the Tobin tax is one issue being looked at. [ID:nLD721292]

Lipsky noted a Tobin tax, first proposed by Nobel laureate James Tobin in the 1970’s, was restricted to foreign exchange transactions and intended to suppress transactions rather than raise revenue.

“While some of the current supporters of a transactions tax intend it in Tobin’s sense, others have extolled such a tax as a potential source of earmarked revenues for a variety of purposes,” Lipsky said, according to the text of his speech.

Some development groups are pressing governments to use the tax funds for fighting poverty in developing countries and tackling issues arising from climate change.

In October the Group of 20 major developed and developing nations asked the IMF to analyze policy options for how the financial sector could make “a fair and substantial contribution” to pay for the current government intervention and future bank rescues.

Lipsky said the study would also look at “the knotty issues of how broadly to define the institutions and/or activities that would be affected, and whether a fund should be created in advance of any future use.”

“Avoiding distortions and insuring systemic efficiency and effectiveness will be important considerations in evaluating the options, including a potential transactions tax, among other alternatives,” he added.

Lipsky said the IMF would present its findings in time for the G20 summit in June 2010.

He said it was important the issue be independently analyzed to clear up confusion about taxing of the financial sector or trade-offs of introducing more stringent regulations that could limit the allocation of capital by banks.

Reporting by Lesley Wroughton, Andrew Hay lesley.wroughton@thomsonreuters.com; Tel: 1-202-898-8317; Reuters Messaging: lesley.wroughton.reuters.com@reuters.net

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