Months after British Prime Minister Gordon Brown fronted a range of ideas for getting banks to pay for their own rescues, his Finance Minister Alistair Darling said more countries now agree on the need for an international systemic tax on banks.
“This must be brought forward quickly, as I will urge international finance ministers in Washington next month,” Darling told Britain’s parliament.
“I agree with all those who think that such a tax should be internationally co-ordinated.”
If a levy on UK banks is imposed in the same way as a planned US levy of 0.15 percent annually on total assets, it would raise up to £3.6bn a year, reports estimate.
Britain’s opposition Conservative party, which could win the national election expected in May, has said it would press ahead with a levy even if there was no deal at the G20 group of countries.
A draft of the German finance ministry’s bank levy proposal showed that all German banks will have to pay towards a fund for future bailouts, with contributions linked to size and risks posed to the financial system.
German Finance Minister Wolfgang Schaeuble said the levy could raise a billion euros.
The German government wants to agree on the proposal at a cabinet meeting and to work it by mid-year into a draft law to protect taxpayers from bearing alone the cost of future bank rescues and restructuring.
“The resources collected for this fund will be available for the financing of future restructuring and winding down measures at system relevant banks,” the German draft read.
“All German credit institutions will be liable to contribute to this fund.”
It remains unclear how long the German charge will be levied on banks, but according to the draft, the finance ministry would continually check whether the charge was “bearable”.
Legal experts said customers will end up paying the levy.
“The only real solution to this is to make sure that banks which are not subject to this charge are prohibited from competing in the relevant territory – in other words, national protectionism,” said Simon Gleeson of Clifford Chance lawfirm.
Next stop: IMF
A global levy on bank balance sheets is emerging as part of a multi-pronged approach to dealing with “too big to fail” banks which pose such risks that their failure would destabilise the financial system as seen with the collapse of Lehman Brothers.
Governments want to put in place remedies so that such banks cannot assume taxpayer help next time they are in trouble such as Britain experienced with RBS and Lloyds.
Last November G20 finance ministers asked the IMF to come up with proposals in April to pay for past and future bank bailouts.
IMF Managing Director, Dominique Strauss-Kahn, said that a Tobin tax on financial transactions which Britain and Germany had initially wanted, was unworkable.
A Tobin tax is also seen as dead due to opposition from the US and Canada but Strauss-Kahn is expected to propose some form of tax on bank balance sheets.
Banks warn a levy would pile more costs on banks which already face tougher capital and liquidity requirements, making it harder to lend to companies and aid economic recovery.