IMF proposes that banks, other financial institutions pay for any government help

IMF says banks should pay for future bailouts

WASHINGTON — The International Monetary Fund is recommending that banks and other financial institutions pay fees to cover the cost of any future government bailouts.

The proposals were requested by the “Group of 20″ countries with the largest economies and will be discussed at a meeting of finance ministers and central bank governors in Washington this week.

The proposals probably will generate controversy with some countries, notably Germany and France, in favor of strong measures to deal with future rescue packages, and others, such as Canada, whose system weathered the global financial meltdown, holding out against any tax on banks.

The U.S. Senate is considering legislation that contains a $50 billion fund to wind down big financial companies whose failure could endanger the U.S. economy.

The United States, Britain and other governments spent billions of taxpayer dollars bailing out banks and other institutions during the meltdown that began in 2008. The bailouts prompted widespread resentment among citizens who felt the bankers were getting special treatment while their everyday problems were being ignored.

The IMF proposals are contained in a document titled “A Fair and Substantial Contribution by the Financial Sector.” A copy of the document was obtained by The Associated Press.

The proposals will be discussed Friday by finance officials from the “Group of 20″ nations, which includes major industrialized countries along with increasingly important economies such as Brazil, Russia, India and China.

The IMF report is not final. After discussions and more analyses, the IMF said, a set of proposed measures will be delivered to the G-20 leaders for their June 26-27 summit in Toronto, Canada.

After analyzing various options, the IMF suggested two ways for financial companies to pay for future rescue efforts.

One called a “Financial Stability Contribution” would be a fee that companies would pay into a government fund to help weak financial institutions, or the payments could go straight into general government revenue. The IMF said this fee would be paid by all financial institutions, with the levy rate initially flat, but refined over time so that riskier institutions would pay more.

The other possible fee, called a Financial Activities Tax, would be imposed on profits and pay at financial companies and paid to the government. Bankers and heads of other financial institutions such as hedge funds would be likely to balk at this suggestion.

The IMF report stressed the need for international cooperation on the issue. Cooperation would be beneficial, particularly in the context of cross-border financial institutions, the IMF said.

“Countries’ experience in the recent crisis differ widely, and so do priorities as they emerge from it,” the IMF said. “But none is immune” from the risk of a future global financial crisis.

The IMF counseled against unilateral action by governments, saying effective cooperation does not require full uniformity but broad agreement on the principles, including the bases and minimum rates for the two levies.

Governments would then have to approve whatever measures the G-20 ultimately decided on.

The IMF said the report responded to a G-20 request as to “how the financial sector could make a fair and substantial contribution toward paying for any burden associated with government interventions to repair the banking system.”