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G20 pulls back over punitive global bank levy

Publication date: 28 June 2010
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Whilst leaders attending the G20 summit in Toronto agreed to cut national budget deficits and promote economic growth, the much-touted proposals for a global levy on banks have been dropped. Despite renewed pressure from certain European heads for a universal levy on banks to pay for the string of huge taxpayer bailouts, countries will instead be able to phase in the tough new international banking regulations at different times in accordance to their economies’ needs.

Britain, France and Germany had argued the tax would curb the type of excessive financial risk-taking that pushed the global economy to the brink, and help build a nest egg for future crises. But the idea came up against fierce opposition from nations whose banking sectors survived the worst of the crisis intact.

There was little dissent on the question of whether banks should face tighter regulation to avoid a repeat of the global financial meltdown of two years ago. Even so, the G20’s original aim of agreeing the new rules by November and having measures in force by the end of 2012 is being softened because different countries are at different stages of recovery from recession.

A draft communiqué listed five guiding principles for financial reform including the need to take into account the individual circumstances of each nation and the need to “level the playing field”. “The G20 expresses support for the financial sector to make a fair and substantial contribution toward paying for any burdens associated with government interventions where they occur to repair the financial system for fund resolution,” the draft said, while refusing to say how such contributions would be made.

A key plank of the reforms is revised “Basel III” measures from the committee of central bankers, including raising banks’ capital and liquidity requirements. On Friday, the Bank of England called for an “extended transition” to any new international rules. And George Osborne used yesterday’s talks at the G20 to push for a longer deadline. The position of the Chancellor of the Exchequer, which followed a lower-than-expected levy on British banks in last week’s emergency Budget, is seen as evidence that Mr Osborne is listening to representations from lenders. Although smaller than feared, the levy coming into force in January will raise £8bn in the first four years.