Shares of banks across Europe gave a muted reaction Wednesday to an International Monetary Fund proposal to double-tax financial institutions to prevent and pay for future crises.

In the proposal, to be presented to the G20 finance-ministers in a meeting Friday, the IMF is calling for a "financial stability contribution" and a "financial activities tax."

Under the first, financial institutions would initially pay a flat tax for "the fiscal cost of any future government support to the sector," according to an IMF document. Overtime, the rate would be adjusted based on the systemic risk of each institution.

The financial activities tax would be imposed on profits and compensation. That tax could serve other purposes beyond building up a fund, such as avoiding excess risk-taking by banks, the IMF said.

According to analysts, any new taxes will likely hurt the sector, particularly banks, which are already facing the pressure from new capital requirements under the Basel III and are unlikely to hit profits they did before the financial crisis.

The IMF proposal, however, was largely expected and is still in early stages, with little details available. A final set of measures on the taxes will be presented in a G20 summit in June, the IMF said.

The Stoxx Europe 600 banking index opened up 0.3% Wednesday, but was flat at 0727 GMT.

In the U.K., Barclays PLC (BCS) stock was up 1.3%, followed by Lloyds Banking Group PLC (LYG), which was up 1.1%. HSBC Holdings PLC (HBC) and Standard Chartered PLC (STAN.LN) both rose 0.1%.

In Spain, Banco Santander SA (STD) was flat, while Banco Bilbao Vizcaya Argentaria SA (BBVA) shares were down 0.2%.

Swiss banks were also mixed, with UBS AG (UBS) up 0.1% and Credit Suisse Group (CS) lower 0.4%.

In France, Societe Generale SA (GLE.FR) was down 0.3%, while BNP Paribas SA (BNP.FR) was 0.5% lower. Credit Agricole SA (ACA.FR) was up 0.4%.

In Germany, Deutsche Bank AG (DB) shares were down 0.2%, while Commerzbank AG (CBK.XE) shares were flat.

"News of new tax proposals isn't a shock anymore, and at this point investors have got the message that going forward, banks will have lower profitability," Oriel Securities analyst Mike Trippitt said.

The British Bankers' Association wasn't immediately available to comment on the IMF proposal.

Last week, the French Banking Federation said banks in that country strongly opposed plans to impose a new tax on banks. "Such a tax would be unjustified and would have serious consequences for the financing of the economy and the competitiveness of companies, and would therefore impact growth," the FBF said in the statement at that time.

The IMF proposal will ignite deep debates in the U.S. and Europe, where many countries are pushing for various bank taxes and other resolutions to address any future crisis.

The French government has said it was waiting for the IMF report before deciding how to design its bank tax. The U.K., which had been lobbying nations for more than a year to adopt such financial levies, welcomed the proposal.

In the U.S., the government has proposed a $90 billion tax on financial institutions to help pay for the direct costs of the financial bailout.

The administration would assess a fee of 0.15% on liabilities, other than deposits and certain required capital holdings of financial institutions with more than $50 billion in assets.

In the paper, the IMF said international cooperation would be "beneficial," and "unilateral actions by governments risk being undermined by tax and regulatory arbitrage."

-By Patricia Kowsmann, Dow Jones Newswires. Tel +44(0)207-842-9295, patricia.kowsmann@dowjones.com

(Anita Greil in Zurich, Jethro Mullen in Paris, William Launder in Frankfurt and Christopher Bjork in Madrid contributed to this story.)
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