EU unveils bank levy proposals

The European Commission unveiled a framework for a levy on banks to charge them in advance for future crises, setting the stage…

The European Commission unveiled a framework for a levy on banks to charge them in advance for future crises, setting the stage for a showdown on the tax at a meeting of G20 world leaders in June.

Michel Barnier, the commissioner in charge of an overhaul of financial services in Europe, promised a new European Union-wide framework by 2011 that could impose a levy on a bank's assets, liabilities or profits to pay for crises.

"I believe in the 'polluter pays' principle," Mr Barnier said in a statement. "We need to build a system which ensures that the financial sector will pay the cost of banking crises in the future."

In making its announcement, the EU's executive hopes to build momentum for a global levy on banks ahead of a meeting of leaders of G20 countries in Toronto next month.

In the text of its proposal, officials write: "The EU should lead G20 efforts to find a global approach."

But there are deep divisions within Europe about the scope of such a tax and what the money collected should be used for. Last April, finance ministers from the 27-country region failed to agree at a meeting on even broad support for a bank levy.

While France and Britain would like it to go to the flagging national budget, Germany wants to ringfence the levy. The European Commission wants it set aside to pay for the winding down of struggling banks.

The British Bankers' Association attacked what it called an EU-wide tax.

"Why should the banks in one country pay for the problems of banks in another?" said its chief executive Angela Knight. "How could a large sum of money sitting dormant somewhere in Europe make economic sense?"

There were few indications today as to how a European Union levy on banks could look like. But officials have said it will not be a central EU tax but more a framework for countries to impose a levy in a uniform way.

Earlier this year, Mr Barnier signalled that investment banks rather than less risky retail lenders should bear the brunt of any bank levy.

As well as divisions within Europe, there is disagreement globally on imposing a special tax on banks.

Canada, whose banks suffered less throughout the crisis, is opposed to such a levy and Washington has also taken a different tack to Europe.

The US wants its fee to recover the costs of the government's Troubled Asset Relief Program put in place to stabilise the banking system at the height of the financial crisis.

Reuters