Bank of Canada Governor Mark Carney said a debate over taxing banks is a “distraction” to Group of 20 meetings this weekend, joining his predecessor David Dodge, the top banking regulator Julie Dickson and Finance Minister Jim Flaherty in objecting to an idea backed by France, the U.K. and the International Monetary Fund.
The G-20 needs “unanimity on the basics of bank capital standards and the basics of bank liquidity standards,” Carney told reporters at a press conference in Ottawa today. “We see the bank levy discussion as a distraction from that core agenda,” he said, adding that countries can make different decisions on a tax.
Flaherty today reiterated he wants banks to keep “contingent capital” on hand: securities they could convert to equity to ensure they remain well-capitalized in the event of another crisis, instead of policy makers imposing a tax that might not prevent future problems. The IMF this week recommended the G-20 tax financial institutions’ non-deposit liabilities and the sum of profit and compensation to help pay for future bailouts of the industry.
“It seems to me a strange thing to punish banks that got the job done,” Flaherty said today. “What we need to work on this weekend is that one size doesn’t fit all in terms of capital reforms related to the banks.”
Dickson said in a Toronto speech today that “such levies, from my perspective, are fraught with difficulty.”
Canada’s economy will be the fastest-growing in the Group of Seven this year, according to economists surveyed by Bloomberg News, in part because the country had no bank failures and kept making loans to fuel new spending. Canada is co-chair of the G-20 this year along with South Korea.
The recommendations from the IMF on bank taxes are “very unhelpful,” former Bank of Canada Governor David Dodge said in an interview yesterday in Ottawa. Dodge is also a co-chair of the Global Market Monitoring Group of the Institute of International Finance and was nominated to the board of Bank of Nova Scotia in March.
“I don’t think what’s going to happen down in Washington over the next couple of days is necessarily going to focus on the right thing either,” Dodge said.
Fraud allegations against Goldman Sachs Group Inc. may also encourage regulators to create new rules that fail to address the causes of the global credit crisis, Dodge said.
“This is going to give a further push for tighter rules, I am not sure we are going to take the right lesson,” Dodge said. “The real lesson is to drive stuff through transparent markets, whether it’s clearinghouses, whether it’s exchanges, to standardize products.”
The U.S. Securities and Exchange Commission said last week it is suing Goldman Sachs for fraud linked to derivatives. President Barack Obama today called on the financial industry to drop its “furious efforts” to fight his regulation plan, saying a failure to impose tougher rules on the market will put the U.S. economic system at risk.
“When something like this happens, it certainly strengthens the hand of Mr. Geithner and the U.S. administration, and it strengthens the hand of the French administration to have tougher rules,” Dodge said, referring to Treasury Secretary Timothy F. Geithner.
To contact the reporter on this story: Greg Quinn in Ottawa at firstname.lastname@example.org.