Proposals for a global transaction tax on banks are "gaining traction", Gordon Brown claimed yesterday, as Britain sought to push its reform agenda with other G7 economies ahead of rival American plans for regulatory overhaul.
The US is the main obstacle to a so-called "Tobin tax", which remains popular across Europe as a way of building up a fund to ensure that banks no longer have to call on taxpayers' cash if they run into problems.
Treasury officials believe President Barack Obama's suggestion of a "risk-based" levy on US banks to recoup federal aid already spent means that the Americans could be persuaded of the merits of a transaction levy to deal with future crises.
The Prime Minister said at his regular Downing Street press conference yesterday: "I think the proposals that I made at St Andrews for an international levy ... are now gaining currency around the world. I think you will probably see further moves to get an international agreement about some international levy to deal with the responsibility banks owe to society."
As he spoke, the City minister, Lord Myners, was hosting a seminar with finance ministers from the G7 group of developed nations, together with officials from the International Monetary Fund and the World Bank, to discuss reform of the system.
Britain wants to see the adoption of "living wills" to enable an orderly wind-down of bankrupt banks, and "firewalls" between risky investment banking activities and deposit-taking. However, the Government is opposed to more draconian rules, such as those proposed by the US, which would ban banks from engaging in proprietary trading and the private equity markets.
One Treasury official said: "[Mr Obama's plans] address specific problems in the US, where there are large investment banks. They would not be appropriate here. And you have to remember that it was narrow banks such as Lehman Brothers or Dunfirmline Building Society that failed." This point has been pushed by "universal" banks such as Barclays, which has a substantial investment banking division but did not need to ask the state for financial support. The British Bankers' Association has also been lobbying on this point. As Lord Myners opened the talks at 11 Downing Street, he said the costs of failures should be "distributed more fairly", with financial institutions and investors shouldering more of the burden. "There is clearly a strong rationale to charge for the externality caused by the financial sector and financial institutions should shoulder the responsibilities for losses they may face," he added.
The peer said ideas such as the Tobin tax, or the insurance levy favoured in the US, would be required "to ensure that the costs of any future failures primarily fall to banks and bank investors rather than taxpayers".
Britain has also pushed the idea that banks could be forced to issue bonds that are convertible to equity in the event of a crisis. But some analysts question whether such "contingent capital", as used in the past by Lloyds Banking Group, would have much value in the wake of a future collapse.
Richard Lambert, of the Confederation of British Industry, said of Mr Obama's proposals: "A unilateral move of this nature undermines the considered G20 approach for effective global reform. There is a question about the extent to which banks that take retail deposits and are protected by taxpayer guarantees should engage in high-risk activities. But there is a lot more work to be done."Reuse content