Canada's Flaherty says bank tax idea is excessive

Wed Apr 21, 2010 4:08pm EDT
 
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By Jennifer Kwan

TORONTO (Reuters) - Canada bluntly rejected the idea of a harmonized global bank levy on Wednesday with Finance Minister Jim Flaherty saying Ottawa would not accept what he called a punitive tax on the country's banking sector.

"Canada will not go down the path of excessive, arbitrary or punitive regulation of its financial sector," he said in a speech at a Euromoney financial industry conference.

Flaherty will join other finance ministers and central bank governors from the Group of 20 leading developed and developing nations in Washington on Friday at a meeting at which financial reforms will top the agenda.

In a report commissioned by the G20, the International Monetary Fund has proposed two new taxes on banks to fund the cost of any future bailouts, according to a leaked document published by the BBC.

Flaherty, speaking later in Ottawa, told reporters he was concerned that one of the IMF's options proposed taxing banks and putting the money into general government revenues.

"We hope we don't have another crisis like this again, bit if we do, who knows when it would be? And would the money still be there, quite frankly, if it goes into general revenues of various governments?"

Flaherty, who sent a letter to his G20 peers last week outlining his opposition to a bank tax, said in Toronto that a systemic risk levy on financial institutions would not be appropriate for countries such as Canada, which did not need to rescue its banks.

He said it could weaken banks' ability to absorb losses. He also said it could increase moral hazard by encouraging banks to take excessive risks in the knowledge that funds were there to rescue them in case of failure.   Continued...