U.K. Banks Face Government Levy

Five U.K. banks may have to pay hundreds of millions of pounds in a levy that aims to charge them for the risks they pose to the country's economy.

The planned bank levy will raise a total of 2.5 billion pounds ($3.59 billion) a year from 2012 onwards, The Wall Street Journal said.

The levy has two goals, according to Financial Secretary to the Treasury, Mark Hoban.

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"First, ensuring that banks make a fair contribution in respect of the potential risks they pose to the U.K. financial system and wider economy," Hoban said, according to The Wall Street Journal. "Second, the final scheme design will encourage the banks to make greater use of more stable sources of funding, such as long-term debt and equity, working with the grain of our wider reform program."

The UK is raising taxes and slashing spending in a bid to rein in its runaway deficits. The country has introduced stricter legislation for its financial sector, prompting British banking giant HSBC (HBC) to threaten to move its headquarters out of the U.K.

All U.K. banks, building societies and U.K. operations of foreign banks with more than 20 billion pound in liabilities must pay the levy. There is an allowance of 20 billion pounds before the levy takes effect.

The country's five largest listed banks, Barclays (BSC), Royal Bank of Scotland (RBS), HSBC, Standard Chartered (SCBFF) and Lloyds Banking Group (LYG), are expected to pay about 50% of the total.

The draft legislation calls for banks to pay up 0.05% of their balance sheets in 2011, excluding the 20 billion pound allowance. From 2012, the rate rises to 0.075%.