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Wed, Jan 27, 2010 - Page 10 News List

G7 officials discuss banking reform

GAINING CURRENCYBritish Prime Minister Gordon Brown’s proposal to introduce a global transactions tax, as well as a global insurance levy, is on the agenda in London


British Prime Minister Gordon Brown said momentum is gathering for a global levy on banks to prevent taxpayers from bearing the brunt of future bailouts as finance officials from the G7 countries met on Monday.

Brown acknowledged differences in recent proposals by Britain and the US to put new levies on banks, but said that the broad idea was the same.

“In the end, you will see over the next few months an international levy,” because it was the only way of dealing with the risks to society imposed by banks, Brown told reporters at his monthly press briefing.

Brown’s proposal of a global transactions tax, floated at November’s meeting of the G20 leading and industrial countries in Scotland, was on the agenda for the talks between G7 finance officials in London.

A US-style global insurance levy and the use of contingent capital, the holding of debt instruments by banks that could be converted quickly into equity in times of stress, was also due to be discussed at the meeting, which included representatives from the IMF, the World Bank and the Financial Stability Board.

The US administration has ­opposed a tax on financial transactions, but US President Barack Obama last week announced plans to levy a fee on major US banks to recoup the billions of dollars spent bailing them out.

Obama is proposing a tax of 0.15 percent on the liabilities of large financial institutions. It would apply only to those companies with assets of more than US$50 billion — a group estimated at about 50.

“As a result of the advancement by US President Obama and the financial secretary Tim Geithner about their levy on wholesale lending, I think the proposals that I made at St Andrews for an ­international levy ... are now gaining currency around the world,” Brown said.

The British leader said debate over the next few months would determine the exact makeup of a levy, whether it be on transactions, turnover, lending, or variations of those measures.

Chancellor of the Exchequer Alistair Darling has previously said that Britain is not considering a levy like the US proposal.

British Financial Services Minister Paul Myners, who hosted Monday’s gathering at No. 11 Downing St, said that it was important that any future costs incurred by governments for interventions in the financial sector “are distributed more fairly.”

The London gathering is not expected to end in definitive ­agreement among the G7 — Britain, the US, Germany, Italy, France, Canada and Japan — but instead feed into an IMF report on the issue scheduled for release in April.

Obama has also called for limits on more risky trading activities, like hedge funds, private equity and proprietary trading.

Brown said that might make sense in the US where the big five banks engaged in a broad range of activities beyond basic retail deposit-taking, but said Britain did not have the same issue.

The London G7 meeting was also being held against the backdrop of reports that US investment bank Goldman Sachs has decided to cap the pay of its ­British-based partners to £1 million (US$1.6 million) each, potentially sacrificing several hundred ­million pounds.

British executives below partner level are not subject to the restrictions, however, and some will earn much more than £1 million each.

Asked about the payouts, Brown pointed to his decision to impose a one-off 50 percent tax on bonuses this year, but added that he remained concerned about excessive rewards.

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