IMF Studies Global Risk Insurance Covered By Tax On Banks

by Ulrika Lomas, Tax-News.com, Brussels

06 October 2009

The Managing Director of the International monetary Fund (IMF), Dominique Strauss-Kahn, has returned to the idea of a tax on the banking system to cover the systemic risks that the financial sector itself creates.

The G20 in Pittsburgh last month had asked the IMF to prepare a report for its next meeting “with regard to the range of options countries have adopted, or are considering, as to how the financial sector could make a fair and substantial contribution toward paying for any burdens associated with government interventions to repair the banking system.”

In response, Dominique Strauss-Kahn, at a press conference during the IMF’s Annual Meeting in Istanbul, said that, while he rejected a so-called “Tobin tax” on bank transactions, the IMF would look into suggestions that the financial sector should contribute to a type of insurance scheme to cover the risks that the financial sector creates.

“Considering that the financial sector is creating a lot of systemic risk for the global economy, and that it is just fair that such a sector would pay some part of its resources to help mitigate the risks that they are creating themselves, having some money coming from the financial sector to create a kind of fund for insurance or funding for low-income countries is something that we are going to consider,” he said.

He added that he had asked John Lipsky, the IMF’s First Deputy Managing Director, to prepare a report in response for the G-20 on the issue. “It is widely accepted that deposit insurance should be funded by a tax on the banking system,” John Lipsky said. “This can be viewed as a mandatory insurance plan. In the wake of the current crisis, it is appropriate to consider the same issues more broadly across the financial system.”

As a general principle, Dominique Strauss-Kahn said that improved global financial stability would require better supervision and regulation. “We should widen the regulatory perimeter and take measures to curb excessive risk-taking and leverage, including by raising the amount and quality of capital and liquidity buffers, especially in good times,” he stated.

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