G20 Officials See No Deal on Bank Levy

By Huw Jones

The world's top nations will back general principles rather than a specific tax to make banks pay for their own bailouts in future, finance ministers and diplomats said on Thursday.

The Group of 20 has pledged a string of reforms to financial regulation in a bid to avert a rerun of the worst financial crisis since the 1930s that forced governments to use trillions of dollars of taxpayer cash to shore up banks.

G20 finance ministers and central bankers meet in South Korean port city of Busan on Friday and Saturday to find consensus for their leaders to endorse at a summit in Canada later this month.

Some officials are already playing down the chances of a uniform tax on banks, raising doubts about the G20's ability to forge deals tricky issues.

"I don't think we're on the verge of a global consensus on bank levy yet," U.S. Treasury Secretary Timothy Geithner told reporters in Seoul.

"I do think there is still very broad support in Europe in particular, in the UK and Europe, for putting in place a financial fee designed very similar to what we've proposed in the United States," Geithner said.

"But there's not universal support for that across the G20, at least at this stage. And I don't think that's going to change in Korea."

The International Monetary Fund proposed two bank taxes in April but was asked by the group of the world's top developed and emerging economies to refine its ideas after opposition from some countries, such as Canada.

It will report back in Busan, but Canada and Brazil still oppose a tax, saying their banks needed no bailouts during the financial crisis triggered by a meltdown in U.S. subprime mortgage market in August 2007.

"Brazil and other countries that are against (it) already have stronger regulation. So to say that the tax, whatever the level, should be universally applied does not make sense.," a Brazilian government source said this week.

◇ TOO BIG TO FAIL

Japan believes its national deposit insurance scheme is an alternative to a bank tax. Canada is seeking support for using contingent capital at banks to protect taxpayers from bailouts.

The meeting in Busan will also try to thrash out an agreement ahead of the Toronto summit on how to tackle "too big to fail" banks.

Policymakers want to make it easy and quick to wind up an ailing bank so that it does not destabilize the broader financial system as seen with the crash of Lehman Brothers in 2008.

But as with the levy, the G20 is expected to end up endorsing general principles rather than a uniform set of remedies.

Proposals range from capital surcharges and "living wills" to more controversial and radical ones, such as changing bank structures but so far there is no global consensus, raising concerns about competitive distortions.

Europe, keen to protect its universal banking model, rejected a U.S. proposal to ban some types of proprietary trading at banks, known as the Volcker rule.

The Financial Stability Board, tasked by the G20 to implement its financial reform pledges, has already downplayed expectations of a common global approach to institutions considered too big to fail, saying a menu of options is likely.

◇ BASEL DEADLINE IN DOUBT

As the G20 gives its members plenty of wiggle room over bank levies and too big to fail remedies, there is more unity over forcing banks to hold more capital and liquidity to withstand market shocks but timing is under pressure.

The Basel Committee of global regulators and central bankers is finalizing the new rules for endorsement at the G20 summit in Seoul in November.

The G20 has agreed that banks must comply with the new rules by the end of 2012 but after the sector warned this may be too soon, there are growing signs the deadline will be pushed back.

"It is perfectly reasonable to use transition periods to make it easier for countries to adjust to what we believe should be substantially a more demanding, more ambitious set of constraints on leverage," Geithner said.

Tougher bank trading book capital rules were due in January but are delayed, casting further doubt over the G20's resolve.

And a G20 pledge to create a single set of global accounting rules by mid 2011 was effectively killed on Wednesday when two leading accounting standards boards said they could not reach common ground on all their rules by then. (Reuters)