G-7 Pledges Action to Force Banks to ‘Bear the Cost’ of Failure - Bloomberg.com

Without giving details of how the plans will work, the ministers said the world’s most advanced economies should adopt common rules as long as other major countries also agree. Earlier today, a British official, speaking on condition of anonymity, said the G-7 is moving closer to an agreement on a bank insurance levy, one of a range of options proposed by the U.K. in November.

“We agreed to work together to make sure financial institutions bear the costs of their contribution” to the financial crisis, Canada’s Finance Minister Jim Flaherty told reporters after chairing two days of talks in the northern Canadian city of Iqaluit.

With government and central bank support for the global financial industry topping $11 trillion, according to the Organization for Economic Cooperation and Development , policy makers want banks to shoulder more of the costs in any future crisis. The International Monetary Fund will recommend to the G- 7 in April the best way to proceed.

As the world economy starts to emerge from the worst financial crisis since the Great Depression, the G-7 is seeking to recoup taxpayers’ funds used to prop up banks, and leaders have called for lenders to repay aid. U.S. President Barack Obama last month announced a levy on financial firms with assets of more than $50 billion.

‘Deep Commitment’

“We all share a deep commitment to try and move forward and reach agreement on a strong set of comprehensive financial reforms,” U.S. Treasury Secretary Timothy F. Geithner said today at the same event.

Geithner said G-7 nations will continue efforts to agree on a set of common capital requirements for large institutions by the end of this year. The G-7 also pledged common standards on all aspects of banking regulation to ensure a “strong multilateral level playing field across these institutions and across global markets” Geithner said.

While there is an agreement to ensure the financial sector carries a greater burden in future rescues, the G-7 officials today debated the threat of banks taking on too much risk if an insurance fund is established, a German official told reporters.

financial institutions received $1.56 trillion in capital injections, $5.21 trillion for asset purchases and guarantees and $4.64 trillion in debt guarantees, according to a study published last month by the Paris-based OECD.

Four Proposals

An agreement on an insurance program was one of four proposals put forward by U.K. Prime Minister Gordon Brown in November. He also said the G-20 should consider a so-called Tobin tax on financial transactions, a proposal the U.S. opposed.

French Finance Minister Christine Lagarde today said that there is a consensus on the need for action, although she stressed that plans may not be identical for all countries and that rules will need to suit the idiosyncrasies of each nation.

“There was very strong consensus to keep the momentum to work comprehensively as cooperatively as we can,” she said. “While we all want to have as consistent a basis as we can, there will be some specificities relating to each and every country.”

Sweden created a fund financed by banks in 2008 to help safeguard its financial system. Swedish banks are required to make annual payments to the fund. The Swedish government injected 15 billion kronor ($2 billion) into the fund when it was set up, as well as cash previously held in Sweden’s deposit guarantee fund.

Fees from the banks and interest on the money in the fund means it will swell to 150 billion kronor, or 2.5 percent of Sweden’s gross domestic product, by 2023, according to government estimates.

To contact the reporter on this story: Gonzalo Vina in Iqaluit, Canada at gvina@bloomberg.net