–FinMin Flaherty Speaks in Mumbai, Other Officials in China, US, Ottawa
–Tax Called Distraction from Main Issue of Bank Capital, Leverage Caps

By Courtney Tower

OTTAWA (MNI) – Canadian Finance Minister Jim Flaherty told India’s
government and financial establishments Tuesday that the largely
European idea of a global tax on commercial banks should be shoved to
the back burner at world meetings in Canada and South Korea.

Flaherty in Mumbai, and other key Canadian ministers in the Stephen
Harper government, mounted an attack in four countries today — India,
China, the United States and at home — on the proposal to impose
versions of a levy on banks to build up financial bulwarks against any
future financial crisis.

Debate on a bank tax, at Group of 20 and G7 meetings in Canada and
South Korea in June and November, would only be “a distraction from the
main issues — the quality and quantity of capital and a cap on
leverage,” Flaherty told Indian and Canadian reporters in a conference
call after speaking to government and business leaders in New Delhi and
Mumbai Monday and Tuesday.

“We need to get that right,” he said. “That’s where the crisis is,”
and where it began.

As Flaherty pressed Canada’s campaign against the bank tax idea in
India, the president of Canada’s Treasury Board, Stockwell Day, was
carrying the same message to China in Shanghai.

International Trade Minister Peter Van Loan, in a speech to the
U.S. Chamber of Commerce in Washington addressed the same theme while
urging vigilance against trade protectionist measures, and Industry
Minister Tony Clement was specifically addressing the bank tax notion at
a press conference in Ottawa.

Prime Minister Harper spoke against the proposal Monday in Ottawa.

Canada will provide more detail on an alternative proposal at the
June meetings of G7 and G20 countries, which Flaherty said he also has
presented in a letter to finance ministers and central bank governors
this week. Harper had written the other leaders of these nations.

The G20 finance ministers and central bank governors meet June 4-5
in Korea in preparation for a leaders summit in Toronto June 26-27,
which will be preceded by a G8 leaders summit in Muskoka June 25-26. The
G20 also will hold a summit in Seoul June 11-12.

Canada opposes a global bank tax, or tax on bank transactions, as
being unfair to the lending institutions of countries, like Canada and
India, which did not have to bail out any banks.

Instead it proposes banks create bonds bought by shareholders, that
could be converted to cash if and when another crisis strikes.
Shareholders and not taxpayers would be responsible for giving the banks
more capital.

More detail of what is called “embedded contingent capital” will be
coming from Canada at the June meetings, and the International Monetary
Fund will be addressing it then, Flaherty said.

The Finance Minister said he does not expect any new or more
detailed final proposals to be agreed upon at the Canada meetings but
there would be a financial sector reform proposal for G20 leaders at the
summit in Korea.

He said he does not expect new proposals on financial sector reform
but more details on proceeding with what leaders already have called
for: more and better-secured capital held by banks and higher levels of
regulation on lending.

Flaherty in India, and Harper in his letter to colleagues, stressed
that heavily indebted countries, in Europe and anywhere else, must
concentrate on paying down their debts.

There must be “fiscal consolidation by certain countries that have
excessive deficits and debt – now!” he said.

“This fiscal consolidation has to be sufficient, by those countries
that are vulnerable,” Flaherty added.

Flaherty also called for exchange rate flexibility.

** Market News International Ottawa **

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