G7 countries want banks to repay bailout money

G7 finance ministers holding talks in the Nunavut Legislative Assembly in Iqaluit, Canada. (AP)

The idea of a global tax on banks to recapture bailout costs has gained ground, boosted by the Obama administration's latest proposals, but there was no agreement on a specific design.

Finance ministers and central bankers from the Group of Seven nations called for closer study of a UK proposal for a bank levy to cover the cost of the bailouts of 2008 and 2009 that ran to hundreds of billions of dollars.

The ministers, meeting in a remote town in Canada's Far North, said any tax that result must be internationally co-ordinated and avoid choking off world economic recovery. Further details are unlikely to emerge for weeks.

The International Monetary Fund is compiling a report, due in April, on options for requiring banks to "make a fair and substantial contribution" towards bailouts. The IMF report was requested in September by the Group of 20 nations.

The G20, a more broadly based organisation that is seen as supplanting the G7, will next meet in June in Toronto. "It was generally agreed that the banks will have to pay for crisis costs," said German Finance Minister Wolfgang Schaeuble at the G7 meeting in Iqaluit, Canada.

Canadian Finance Minister Jim Flaherty said officials agreed that financial institutions should "bear the costs of their contributions to those crises".

French Economy Minister Christine Lagarde said: "We all agree that it had to be a universal taxation or universal levy or instrument to avoid the risk of arbitrage."

Talk of a bank tax has swirled for months since governments stepped in with massive taxpayer aid to stabilise the financial system amid the worst capital market crisis since the 1930s, with the exact targets for taxation varying.

Britain announced a 50 per cent levy on large bonuses at banks to help cover the cost of the crisis. Sweden is imposing a direct levy on bank loans to recoup roughly $10.6 billion (Dh38.93bn) from its banks to go into a financial crisis fund.

IMF head Dominique Strauss-Kahn has raised the idea of a one-off tax on bank earnings to recoup taxpayer bailout money.

British Prime Minister Gordon Brown gave the bank tax idea a boost in November when he called for considering it "with urgency". That swung Britain's position on the question into line with France and Germany. G20 officials said the levy mentioned by Brown would apply to financial transactions or bank earnings and be small.

The United States, whose support would be key to any decision, was decidedly cool throughout 2009 to bank tax ideas, including Brown's.

But the Obama administration has recently shifted its stance amid growing public anger over the bailouts, surging bank profits and a return to sky-high banker bonuses.

 

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