Spending Review: Government levy on banks outlined

The government has published draft legislation on how a new levy on bank balance sheets will operate.

It will apply to the global balance sheets of UK banks and the UK operations of banks from other countries and will be introduced in January 2011, the Treasury said.

By 2013, it is expected to raise about £2.5bn ($4bn) a year.

The legislation will encourage banks to take fewer risks with their funding, the Treasury added.

Peter Thal Larsen, assistant editor of Reuters financial website breakingviews told the BBC the levy has been deisgned to 'stop banks relying on short-term hot money'.