Seoul won’t push for bank levy scheme

By Cho Jin-seo

Staff reporter

The government will not push for a new bank levy before other countries despite its effectiveness in preventing a financial crisis, officials said Monday, raising speculation that Seoul will not seek to take the lead in tabling this move at the G-20 Seoul summit.

Officials at the Ministry of Finance and Economy and the Financial Services Committee (FSC) said that the government has placed less priority on a bank levy, while observing progress in other countries.

Along with France, Germany and the United Kingdom, South Korea has been supporting the bank levy. Australia, Canada and India oppose it. The United States excluded it from its latest financial reform bill only last week, and wants to make it a separate bill.

"We hit the brakes," a high-ranking official at the finance ministry told The Korea Times. "That does not mean that we have abandoned the plan. We will do it someday. But that's not going to be very soon," he said.

Another official at the FSC echoed this view.

"Our position is not to take a leading role on either side. We may have our own opinion, but won't push for anything until the G-20 reaches a consensus. We must respect what other countries want to do," he told The Korea Times.

The bank levy is a proposed tax on banks and other financial firms. In the United States, regulators had planned a 0.15 percent tax on banks' liabilities minus their retail deposits, in order to make them more prudent in investing.

The system can also raise funds to pay back bailout costs incurred during the financial crisis, as well as cover the cost of any future banking crisis. Imposing a tax only on non-core liabilities is supposed to leave a limited dent in banks' profits, as long as they manage their money prudently.

Korea's finance ministry has been advocating the bank levy scheme, believing this could help smooth the cyclical behavior of banks ― banks tend to have too much financial leverage in good times, and rapidly deleverage in bad times.

The U.S. politicians' decision to exclude the bank levy scheme last week from the so-called Frank-Dodd bill has made Korean officials more cautious on the issue.

By taking a neutral stance, Korea wants to stay within the global trend without making its economy more vulnerable or less credible, the finance ministry official said.

This subtle change also reflects the main problem at the Group of 20 (G-20) meeting, where countries are finding it hard to produce a cohesive solution to fix the global financial system. The G-20 has abandoned the idea of a global bank tax, and instead encouraged each nation to set up its own solution under a general guideline.

"The idea of having a universal bank tax on a global scale was wrong in the first place. At the national level, it can be a good policy," the ministry official said.