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.
“A levy could result in excessive risk-taking because of the perception of a government guarantee against an institution’s failure,” he said.
Flaherty urged policymakers to focus on fundamental reforms that would toughen bank capital standards, warning that complacency may set in as the global economy recovers.
He hailed the Canadian recovery as the fastest of any Group of Seven advanced economy and said the country’s net debt-to-GDP ratio would begin to fall in 2012.
Canada will host the G20 summit in Toronto in June. Flaherty said the top priority will be sustainable growth and financial reform.
“The major issue has to do with sustainable growth, and concern about imbalances. I would hope that we would see progress on that issue, directional progress. Similarly, with financial sector reform,” he said.
Flaherty also said on Wednesday that he is close to presenting legislation in Parliament to create a single, national securities regulator.
The lack of a national regulator in Canada has been a sore point for decades, with investors complaining about the patchwork quilt of 13 provincial and territorial watchdogs.
Ottawa has forged ahead with plans to institute one, aiming to lower barriers for investors and bolster regulators’ ability to monitor risk throughout the financial system, in compliance with commitments Canada has made to the G20.
He noted the provinces of Alberta, Quebec and Manitoba are not participating in the process. A transition office has been formed with the goal of setting up the regulator by 2012.
Last fall, the federal government announced plans to seek the opinion of the Supreme Court on whether Parliament has the authority to create such a national regulator. Some provinces, including Alberta and French-speaking Quebec, have insisted the matter falls under their jurisdiction, not Ottawa‘s.
With additional reporting by Louise Egan and David Ljunggren in Ottawa; editing by Peter Galloway