Back to Headlines Print Version Buzz Up Stumble it Tweet it Facebook LinkedIn

UPDATE:UK Brown:G20 Should Mull Global Financial Transaction Levy

By Laurence Norman and Joe Parkinson, Of DOW JONES NEWSWIRES

(Updates with further detail)

ST ANDREWS, Scotland -(Dow Jones)- The Group of 20 leading economies should consider applying a global financial transactions tax to pay for the cost of future banking crises, Prime Minister Gordon Brown said Saturday.

Brown said G20 members should discuss whether they need some kind of " insurance fee to reflect systemic risk or a resolution fund or contingent capital arrangements or a global financial transactions levy."

In the past, the U.K. has leaned against the idea of a Tobin tax, which would use the proceeds of a financial transactions tax to provide funds to developing nations.

However, Brown's proposal more closely resembles a deposit insurance scheme, in that the fees gathered from the levy would be placed in a ring-fenced fund that would be drawn on should banks once again need state support to survive.

Brown said there needs to be a "better social contract" between banks and the rest of society.

"It cannot be acceptable that the benefits of success are reaped by the few, while the costs of failure are borne by all of us," Brown told finance ministers and central bank heads from the G20. "We need to consider if we need to go further in terms of mitigating costs to the rest of society."

Brown said Britain would not adopt such a plan "unless others move with us together."

He also said the tax would have to be "non-distortionary to avoid damaging reductions in liquidity, inefficient allocation of capital and the temptation of avoidance."

He also said any tax must not undermine efforts to stabilize the financial system and that the contribution from the financial sector must be "fair" and " measured."

The Bank of England estimates that in the U.S., the U.K. and the euro zone, state support for the banking systems has totaled $14 trillion, or a quarter of global economic output.

Over the last century, bank failures have become increasingly expensive for taxpayers, and short of war pose the greatest threat to the solvency of governments.

Brown said that imposing a levy would involve overcoming "enormous practical issues," but called on bank chiefs to "engage in constructive dialogue."

He said the International Monetary Fund had agreed to study ways in which a levy might be implemented, and report back to the G20 in April 2010.

The Prime Minister stressed that the G20 process had helped stabilize the global banking system and reiterated his warning against removing economic stimulus measures too early.

"While recent indications of economic expansion give cause for cautious optimism they are not a reason to end economic stimulus prematurely," he said.

-By Laurence Norman and Joe Parkinson, Dow Jones Newswires; 44-207-842-9270; laurence.norman@dowjones.com

  (END) Dow Jones Newswires
  11-07-090706ET
  Copyright (c) 2009 Dow Jones & Company, Inc.