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Canada Tax: Canada leads G20 push for banking reform

MONTREAL -- Having successfully led the charge against the global bank tax, Canadian policy makers are aggressively pushing its Group of 20 peers to accelerate the pace at which they can strike a deal on banking reform -- and are gaining some key allies in the process.

Both Jim Flaherty, the Finance Minister, and Mark Carney, the Bank of Canada governor, delivered similar messages Monday at a key economic policy conference in Montreal, while the head of the Organization for Economic Co-operation and Development said it was time to put the global bank tax to rest and focus on how much capital is on lenders' balance sheets.

"It is all about capital, capital, capital," said Angel Gurria, the OECD secretary-general.

Mr. Flaherty was more blunt, suggesting the bank tax debate has delayed crucial talks. "Quite frankly, we ought to look at accelerating the financial reforms," he said. "Uncertainty is the enemy here and banks and other financial institutions need to know as soon as reasonably possible what the quality and quantity of capital standards are going to be and what the cap on leverage is going to be."

The original goal was for new global financial rules, developed by the Basel Committee of banking supervisors, to be unveiled by the end of the year and implemented by the end of 2012. But there are now worries that the implementation date could be delayed.

Mr. Carney, meanwhile, said the most recent G20 meeting of finance and central bank officials in Busan, South Korea was key in terms of getting the world's big economies focused on what he deemed the "core" issues of capital levels, leverage limits and more effective supervision. The meeting also marked an end to a global bank tax, as there was no consensus among G20 members on its implementation.

"There are other issues that will probably be applied in a differentiated basis in other countries, but those are not the core," said Mr. Carney, in reference to the tax on banks. "We made progress in South Korea on refocusing on the core, and [we hope] to drive that through to Toronto and the balance of the year. And I am confident that we will get that done."

Mr. Carney spoke during a luncheon panel discussion at the International Economic Forum of the Americas, along with his French counterpart, Christian Noyer. Mr. Noyer said G20 countries should stick to their original timelines, and at a minimum resolve at this month's leaders' summit in Toronto to stick to them. "The direction must be clear."

Mr. Noyer said the rules should be developed even if they are phased in gradually to accommodate weaker economies, such as in Europe, concerned that forcing banks to raise hundreds of billions in fresh capital could threaten the global recovery. European businesses rely heavily on banks for funding, and not as much on capital markets.

Mario Draghi, head of the Financial Stability Board -- which is overseeing the G20's reform efforts -- has suggested a phased-in or gradual implementation was inevitable, with some countries implementing the rules ahead of others.

Canadian banks have grown frustrated with the pace of financial reform, as they have been refrained from raising their dividends or undertaking acquisitions while they await these new regulations.

Mr. Gurria said the major economies should take a cue from Canada, whose banking rules and effective supervision proved effective in preventing the type of banking crisis that hit the United States and Europe.

"[Canada] is an exception, and that is the unfortunate part of this thing -- it is not the rule," Mr. Gurria.

Others, however, expressed concern about whether Canadian efforts would succeed.

"In the coming months the G20 will have to prove they are still willing and able to address the need for systemic structural reforms," said Jochen Sanio, president of Germany's banking regulator, BaFin.

Mr. Sanio, whose country was among the strongest proponents of a bank tax, said the ball is now in Canada's court, and "much will depend on the diplomatic skills of this country to gain momentum again."

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