G20 compromises on plans for tougher banking rules

Different countries will be able to phase in the tough new international banking regulations at different times according to their economies' needs, under plans expected to be agreed at the G20 summit in Toronto.

The compromise on timing mirrors a similarly flexible approach on the increasingly divisive question of whether countries should continue fiscal stimulus measures to boost economic recovery, or make moves to cut ballooning public deficits.

There was little dissent on the question of whether banks should face tighter regulation to avoid a repeat of the global financial meltdown of two years ago. But the G20's original aim of agreeing the new rules by November and having measures in force by the end of 2012 is being softened because different countries are at different stages of recovery from recession.

The summit also refused to back proposals for a universal levy on banks to pay for the string of huge taxpayer bailouts, despite renewed pressure from European leaders keen to placate voters facing austerity measures.

Details of the final agreement remained unclear last night, with negotiations involving the G20 leaders continuing late into the evening. But a draft of their communiqué listed five guiding principles for financial reform including the need to take into account the individual circumstances of each nation and the need to "level the playing field". "The G20 expresses support for the financial sector to make a fair and substantial contribution toward paying for any burdens associated with government interventions where they occur to repair the financial system for fund resolution," the draft said, while refusing to say how such contributions would be made.

A key plank of the reforms is revised "Basel III" measures from the committee of central bankers, including raising banks' capital and liquidity requirements. On Friday, the Bank of England called for an "extended transition" to any new international rules. And George Osborne used yesterday's talks at the G20 to push for a longer deadline. The position of the Chancellor of the Exchequer, which followed a lower-than-expected levy on British banks in last week's emergency Budget, is seen as evidence that Mr Osborne is listening to representations from lenders. Although smaller than feared, the levy coming into force in January will raise £8bn in the first four years.

Britain's move, alongside similar measures in Germany and France, was decided before the Toronto summit after opposition saw a global levy dropped from the G20's proposals.

Similar plans were dropped from the financial reform Bill passed by the US Congress last week. But within days President Obama was urging lawmakers to agree a $90bn, 10-year bank levy as the next stage of the reforms.