E.U. Support Bank Levy Plans In G-20 Letter

The European Union has indicated it is ready to work with the Group of 20 leading economies in constructing a global framework for taxing banks. The fresh sign of support comes ahead of an informal meeting of E.U. finance ministers in Madrid later this week, where the finance chiefs will attempt to hammer out a more unified E.U. position on the subject.

“We need to put in place barriers, deterrents, obstacles, disincentives so that banks do not follow the same road that leads to systemic risk.”

Christine Lagarde


With the recent financial crisis forcing governments to bail out struggling European banks, policy makers have come forward with an array of suggestions on how to force the industry to pay for some of the costs.

“We are ready to co-operate with G20 members on globally co-ordinated principles for a stability levy on the financial sector,” E.U. officials wrote in a draft letter earlier this month, seen by Reuters.

The fresh sign of support comes ahead of an informal meeting of E.U. finance ministers in Madrid later this week (16-18 April), where the finance chiefs will attempt to hammer out a more unified E.U. position on the subject.

With the recent financial crisis forcing governments to bail out struggling European banks, policy makers have come forward with an array of suggestions on how to force the industry to pay for some of the costs.

So far, there been little coalescence around one idea however, with pressure building ahead of a G-20 finance ministers meeting in Washington next week.

French Finance Minister Christine Lagarde repeated her support for a bank levy Tuesday:.

“We need to put in place barriers, deterrents, obstacles, disincentives so that banks do not follow the same road that leads to systemic risk,” she says.

A European Commission study published earlier this month suggested a new tax on banks could generate as much as €50 billion a year for E.U. governments, currently struggling under record-high budget deficits.

The reports authors said the money could be used to fund future bank bail-outs, climate change and development goals.

For its part, the International Monetary Fund has taken a tough line on banks deemed “too big to fail”.

In a 27-page assessment published on Tuesday, the Washington-based organization analysis the idea of bigger banks holding greater amounts of capital than smaller firms, and also indicates support for the idea of bank levies.

It is necessary to consider “instituting systemic-risk based capital surcharges, applying levies that are related to an institution’s contribution to systemic risk or, perhaps, even limiting the size of certain business activities,” the document says.

The suggestions are likely to prove controversial in financial centers such as Wall Street and the City of London where bankers have repeatedly stated their opposition to tougher regulatory obligations for larger firms, according to the EUobserver.com.

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