G20 resisting efforts to impose bank bailout taxes

Proposals to hit banks around the world with new taxes to help pay for bailouts split world finance leaders on Friday.

Governments want to ensure that taxpayers will not be on the hook in the future if troubled financial firms have to be rescued with public money, as happened in the United States, Britain and other European countries during the credit crisis.

Britain and Germany agree that banks should pay for their own rescues; France has said a tax on banks could make them safer. The Obama administration, which supports a widespread levy, and many other countries agree that no bank should be considered too big to fail.

But Canada, whose banks passed through the financial crisis without government assistance, oppose a global measure.

With governments divided on the issue, the Group of 20 largest economies was set to ask the International Monetary Fund to do more work on its idea of global bank taxes.

At a G20 meeting in Washington, an official familiar with the closed-door discussions said there was a lot of resistance from member countries and that the group's final communique would not support the idea.

Instead, the official said G20 countries would urge policymakers to follow through on so-called core reforms to capital, liquidity and leverage standards for banks.

Canadian Finance Minister Jim Flaherty has already publicly rejected the idea of a harmonized global bank levy and has said Canada will not accept a punitive tax on its financial sector.

We're a sovereign country. We can regulate our banks and our other financial institutions as we see fit, Flaherty said at the meeting. As the finance minister of Canada, I'm not going to impose a tax on our banks that performed well during the financial crisis. It seems to me a very odd thing to do.

Unlike the United States, Canada's financial sector weathered the 2007-2008 economic crisis without government help.

Wall Street lobby group the Securities Industry and Financial Markets Association said the new taxes would burden economies emerging from the crisis.

COVERING RESCUES, BOLSTERING BUDGETS

Ahead of the G20 meeting in Washington, the IMF proposed new taxes on banks worldwide in an effort to make financial services firms pay for their own rescues. One would cover the cost of future financial sector bailouts and the other would tax banks' profits to bolster national budgets.

The IMF proposal is not final and the G20 is expected to ask the Fund to study the issue further, sources at the meeting said.

There is a lot of resistance to the tax on banks. Canada is not isolated, said another source at the meeting.

A third source said there is a sense of wariness among some G20 countries about having a single proposal for a problem that is not shared by all countries.

Many countries with conservative banking regulation say that meant their banks did not contribute to the financial crisis.

The G20 meeting comes as the Obama administration and Democrats try to pass legislation that would rein in banks, shed light on derivatives and create new rules for financial products and the capital markets.

Obama's proposal to tax financial institutions to recoup funds from the government's bailout, raising $90 billion over a decade, received a tepid response this week from the chief tax writer in the Senate, a Democrat.

(Reporting by Ana Nicolaci da Costa, Louise Egan and Rachelle Younglai; Editing by Padraic Cassidy)