ANALYSIS-Pressure builds for levy on banks but no consensus

* Any major levy on banks may have to be global

* International banking lobby prepared to discuss levy

* Wide range of options; debate still in early stages

* Tobin tax on financial trading meets stiff opposition

* Many banks think insurance fee most likely option

By Huw Jones

LONDON, Nov 23 (Reuters) - Faced with rising debt and angry taxpayers, governments are edging towards imposing a global tax on banks to make them pay for financial sector bailouts costing hundreds of billions of dollars.

National rivalries, political infighting and lobbying by the banks themselves may still end up blocking any agreement on a global levy. Financial and regulatory officials remain far from a consensus on the size and nature of any tax.

But after months of resistance, the banking industry itself now concedes it needs to discuss the idea of a levy, which could reimburse taxpayers for some of the money spent on bailouts over the past 18 months, and create a fund to pay for future rescues.

"A fund at some point is, I think, inevitable," Charles Dallara, managing director of the Institute of International Finance, a global lobbying group for banks, told Reuters.

"We are open to discussing the construct and operation of a global resolution fund. There does need to be some willingness on the part of the private financial community as well as the public sector to have a very constructive dialogue. It's early days."

INTERNATIONAL COMPETITIVENESS

Leaders of the Group of 20 nations, meeting in Pittsburgh in September, asked the International Monetary Fund for a global study of options requiring banks to "make a fair and substantial contribution" towards bailouts.

British Prime Minister Gordon Brown gave the idea of a global levy a fresh boost this month when he called for it be considered "with urgency". That was a shift in Britain's position, bringing it in line with France and Germany, which have been keen on exploring a global tax.

Pressure for a global levy is building partly because imposing individual taxes at a national level could be counter-productive. No country wants to hurt the international competitiveness of its banks by burdening them with a major new tax that overseas rivals do not face.

"It would have to be an international rule, not just a U.S. rule," U.S. House of Representatives Speaker Nancy Pelosi said of the idea of taxing banks' financial trading. "We couldn't do it alone, we'd have to do it as an international initiative."

The range of options being considered by the IMF and national lawmakers is wide -- which shows how popular the idea of a levy on banks has become, and also how far policymakers remain from reaching a decision.

OPTIONS

IMF head Dominique Strauss-Kahn has raised the idea of a one-off tax on bank earnings, which are now recovering from the financial crisis, to recoup some of taxpayers' bailout money. He called it a "possible windfall tax for 2009, a one-shot thing".

The IMF's chief economist Olivier Blanchard said a windfall tax might be levied on banks' assets rather than on profits.

But the IMF, which is due to report back to G20 finance ministers next April, is also considering longer-term, more permanent options.

One is a tax on financial transactions, a so-called "Tobin tax". For some national politicians, this is one of the most appealing ideas, as it would strike directly at the flamboyant trading culture which contributed to the global financial crash.

Blanchard said the IMF was studying the technical feasibility of such a tax. U.S. lawmakers have proposed several versions, which might be imposed on trade in stocks, options and instruments such as over-the-counter derivatives.

That option seems to have little chance of going ahead, however, because it would strike directly at the core financial centre business of London and New York. U.S. Treasury Secretary Timothy Geithner has flatly rejected any tax on day-to-day trading, and Strauss-Kahn said it would risk being unworkable.

Another possibility, which appears more likely to be adopted, is levying some form of mandatory insurance fee on banks; the fees could be used to build up a fund that would conduct future bank rescues, relieving taxpayers of the burden.

"Basically, taxing firms for the risk they impose: some form of 'insurance premia'," Blanchard said. "Whether we call these insurance premia or taxes is only a matter of semantics."

COSTS

Estimates for the cost of bank levies vary wildly. A financial trading tax could be as low as 0.005 percent per trade, G20 sources told Reuters; but some proposals by U.S. lawmakers envision a 0.25 percent tax on some trades.

One U.S. proposal would raise $150 billion a year in the United States, according to its sponsors. Anti-poverty campaigner Oxfam estimates over $600 billion could be raised annually by a global tax of 0.05 percent on currency, share and derivatives transactions.

Simon Hills, executive director at the British Bankers' Association, said talk of a trading tax was largely "political posturing", especially in Britain where elections loom, and that many banks saw the insurance option as the most likely outcome.

"People are thinking about building up a prefunded insurance scheme, via a levy, which might be made before or after a rescue, which would effectively provide a form of contingent capital," Hills said.

OBSTACLES

Even if the G20 can agree in principle on an insurance levy, however, details could take years to thrash out, and obstacles to introducing the tax in practice could prove insuperable.

"Of course this is fraught with problems -- every country would have to implement it in the same way, otherwise people would find ways around it and it could discourage very sensible hedging of risks," Hills said.

Regulators could find it hard to calculate a levy that was high enough to build up the bailout fund, but did not unduly raise costs for banks' customers or hurt banks' share prices.

There would also be the question of managing the fund during periods when banks did not need rescuing.

"We need to find out who will be the stakeholder, who looks after it, who can take the money from it, will the right people end up paying for it?" said Sharon Bowles, chair of the European Parliament's economic affairs committee.

For these reasons, G20 governments may still decide, eventually, that a global bank levy is not feasible, and seek to limit the costs of the next financial crisis merely through tighter regulation of banks.

The G20 has said banks will face higher capital requirements under Basel II guidelines by the end of 2012, while it wants the top banks, by the end of next year, to draw up "living wills" that would facilitate their break-up in the event of a crisis.

One senior European regulatory official said banks might end up being given a choice between complying with tougher capital and "living will" requirements, or paying an insurance levy. (Additional reporting by Alan Wheatley in Beijing, Lesley Wroughton in Washington, Ed Taylor in Frankfurt, Brian Love in Paris, Kirstin Ridley and Steve Slater in London; Editing by Andrew Torchia)