France may introduce bank tax

France may start taxing banks to pay for aid handed out in the financial crisis, French Finance Minister Christine Lagarde has said. France is following the example of the United Kingdom, Germany and the United States. Meanwhile, Lagarde wants new rules for consumer credit to halt abuse and protect poor households from sinking into unmanageable debt.

Nicolas Sarkozy and Christine Lagarde at a press conference in August 2009. (Photo: Reuters)

Asked during a radio interview whether she backed the idea of a bank tax, Lagarde said "yes, of course, in principle", adding that the French bank tax would not be “necessarily exactly like Germany’s”.

“We will tax financial institutions which through their activity or their risky profile represent a risk to the economy and the country”, the minister said.

France has been working on the idea of such a tax for several months and has debated the idea with the members of the International Monetary Fund (IMF).

Christine Lagarde said the IMF’s recommendations on how to “recoup public money which has been used to support banks and other financial institutions during the crisis” were due in April.

Britain and Germany have also been drawing up a bank tax to fund bailouts, with Germany due to launch its tax at the end of the month. It will be used to build up an emergency fund of some one billion euros per year.

On 14 January US President Barack Obama unveiled a plan to tax risky assets of some 50 big American financial institutions to compensate for the extensive bailout of the sector, which had cost hundreds of billions of dollars.

France did not have to directly bail out banks but it supplied tens of billions of euros in loans and guarantees to French banks in 2009. It has also introduced a tax on bankers’ bonuses.

At their April meeting in Madrid, EU finance ministers will discuss the creation of a tax specifically designed for European banks, which would help build up a European Stability Fund. For the tax to be adopted a unanimous vote is needed.

Meanwhile, Lagarde is pushing for a reform of consumer credit in France to avoid abuse and to protect consumers.

Some nine million households – or one in three – apply for a consumer credit in France every year. More than 150,000 of them fall into the spiral of over-indebtedness. In 2009, their number even rose to 18 per cent.

The French Senate has already passed the bill, which now needs the French National Assembly’s approval It is dicussing the law on Wednesday and again on 1 April.

The law would impose rules on banks and other lending institutions, such as verifying clients’ solvability, systematically checking payment activities, and keeping score of clients’ previous credits.