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Finance Minister Jim Flaherty gives an interview in Ottawa on Monday, Dec. 21, 2009.

Finance Minister Jim Flaherty says he will be adamant about opposing a bank tax, even after the IMF has come out in favour of one.

"Canada will not go down the path of excessive, arbitrary or punitive regulation of the financial sector," Mr. Flaherty said.

He said the government does not want to see financial institutions in this country penalized because of their relative success and their stability during the course of the crisis.

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The Finance Minister's comments, which he made in Toronto Wednesday morning at a Euromoney conference, show that he is prepared to battle his G20 counterparts over the creation of a bank tax even as support for the idea grows.


Mr. Flaherty noted that the idea of taxing banks has gained support among many European countries and in the U.S.

Their view is that the levies would penalize institutions that triggered the global recession and create a cushion against future crises, Mr. Flaherty added. The idea is to create a pool of funds that could be tapped to help pay for future bailouts.

Mr. Flaherty said he agrees that taxpayers should not be on the hook for the costs of bailing out financial institutions.

But he says a tax is not the best way to ensure that. A tax could weaken banks' ability to absorb loan losses, and could also result in excessive risk-taking because of the perception of a government guarantee against bank failures.

Both he and Canada's top banking regulator are instead promoting an idea based on the use of "embedded contingent capital," which is essentially a security that converts to common equity when a bank is in trouble.

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Mr. Flaherty's comments come as he prepares to travel to Washington to meet finance ministers from around the world on Thursday.

He said that the economic situation in Canada is better than in many other countries.

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