Beijing :  Group of 20 (G20) countries need to keep their eye on the ball in reforming the financial sector, focus on capital requirements and steer clear of a global bank levy, Canadian Finance Minister Jim Flaherty said yesterday.

Flaherty, speaking at a forum in Beijing, said that he had written his G20 counterparts last week to lay out in more detail Canada's proposal of "embedded contingent capital" as an alternative to a global bank tax.

This discussion will be carried on at the G20 fin-ance ministers meeting this weekend in South Korea and will continue at the G20 leaders meeting in Toronto at the end of the month, he added.

Canada has been the most vocal opponent of the idea of a bank levy as a way of paying for future bailouts. Instead, it has suggested that banks raise more capital through bonds that would convert to equity in the event of financial distress, a proposal that Flaherty has said is garnering more support.

He said there was broad agreement among G20 nations that financial institutions, not taxpayers, should cover the cost of cleaning up crises they create, but insisted that there was not a one-size-fits-all solution.

"Each country should be given the flexibility to consider whatever measures are appropriate under the circumstances for that country," he said.

Objectives

Flaherty added that the fundamental objectives for regulation should be to increase the quality and quantity of capital on banks' books and to cap leverage in order to avoid excessive risk taking.

"We need to keep our eye on the ball in terms of fin-ancial sector reform," he said.

Canada expects its economy to grow by 3.3 per cent this year, Flaherty told Reuters on Wednesday, adding that inflation remained a concern and might eventually force additional interest rate hikes.

The Bank of Canada raised its key interest rate on Tuesday, the first G7 industrialised economy to do so after the global recession, but it said the European debt crisis made its next move highly unpredictable.

Flaherty said G20 nations had previously discussed how to create and time exit strategies, always on the understanding that it was too early to implement them.

Bailout proposal

The world's top nations will back general principles rather than a specific tax to make banks pay for their own bailouts in future, finance ministers and diplomats said yesterday.

The Group of 20 has pledged a string of reforms to financial regulation to avert a rerun of the worst financial crisis since the 1930s that forced governments to use trillions of dollars of taxpayer cash to shore up banks.

— Reuters