G20 backs down on global bank tax

The Group of 20 nations have failed to agree on a proposal to impose a global tax on banks aimed at making the financial industry shoulder the cost of bailouts, settling instead for a common set of guidelines.

G20 finance ministers and central bank governors said in Busan, South Korea, that governments would take account of each nation's "circumstances and options".

The result allows nations such as Canada, China and Brazil, whose banks suffered less during the global financial crisis, to skip introducing a tax. European countries and the United States have advocated the levy.

"If we're living in an ideal world, a global financial tax would be a good idea but in reality, it is almost impossible to implement," said Tomo Kinoshita, an economist at Nomura Holdings, in Hong Kong. "There are too many obstacles."

The statement left in place an initiative to seek tighter global standards for capital levels at banks, which was a more practical way to help reduce the risk of financial crises, Kinoshita said.

Banks have opposed the effort, warning that the costs may curb credit expansion and economic growth.

European governments and the US have advocated a bank tax to be adopted in leading countries to prevent lenders from relocating to jurisdictions that do not charge the levy.

The International Monetary Fund was asked by the G20 last year to recommend how to tax the industry.

Ministers yesterday said they now recognised that there was a range of policy options open to countries and agreed instead to adopt principles that protect taxpayers and reduce the risks of further crises.

Canadian Finance Minister Jim Flaherty, speaking at a press briefing at the conclusion of the two-day G20 gathering in Busan, said the plan lacked majority backing among G20 nations and was a distraction. He said there was no agreement to proceed with a tax.

Dominique Strauss-Kahn, the fund's managing director, said: "The problem is not uniformity, the problem is to do things which are consistent and that do not create arbitrage in terms of regulation and taxation."

The principles would be written in a way that avoided inconsistency, he said.

The G20 separately said it was critical to have rules tough enough to ensure lenders could withstand further crises.

- BLOOMBERG