Banking levy top of IMF's reform options

International Monetary Fund to tell G20 it favours a self-insurance premium to guard against crises
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The Independent Online

Tough proposals for an international banking levy to insure against future financial crises will be ready as soon as April, the deputy managing director of the International Monetary Fund, John Lipsky, confirmed.

Speaking at the World Economic Forum in Davos, Mr Lipsky said that a fund to deal with banking catastrophes was "practical", and that the IMF was on track to present a "menu" of options at the next meeting of G20 ministers in April, which is to be held at the same time as the IMF's spring conference.

Mr Lipsky was charged by the G20 leaders at the Pittsburgh summit last year with the task of creating possible ways that financial institutions could self-insure the system, and to look at specific capital requirements measures imposed by national regulators.

The insurance premium or "banking tax" options will be refined and presented at the G20 heads of government summit in Canada in June. If agreement is then reached, the implementation of an unprecedented international levy could theoretically begin by the end of the year. In the US, the Obama administration has already announced its plans for a 10-year levy on banks while the British Government has opted for a tax on bankers' bonuses.

Mr Lipsky was keen to stress that the IMF was willing to look at all possibilities, and did not rule out a so-called "Tobin Tax" of financial transactions to raise funds to deal with future crises. Gordon Brown has spoken in favour of such an approach in the past although the Governor of the Bank of England, Mervyn King, said last week that he thought a Tobin tax should be at the bottom of a menu of options being considered by politicians. Mr King's scepticism appears to have backing from the IMF, where officials over recent months have been hinting that some form of insurance premium levy is a more realistic option politically.

Other crucial issues yet to be decided include the sheer scale of such a fund: "You need some sense of how to define the risk you're trying to insure," said Mr Lipsky. Multiple waves of damage to the financial system from a banking failure or crisis could present an almost limitless bill for the new international insurance fund. Nor has the question of pre- or post-funding been determined, nor indeed the question of where to invest the funds collected by a pre-paid scheme.

The IMF's difficulties are compounded, said Mr Lipsky, because there is little academic research on the subject and few workable schemes around the world, although he pointed to Swedish experience as one such. More generally widespread are deposit insurance schemes, such as America's Federal Deposit Insurance Corporation.

The IMF scheme seems certain to be focused tightly on financial institutions and will not provide, for example, an ongoing flow of funds for development assistance to poor nations, as some pressure groups have urged.

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