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IMF wants two big new taxes on banks

Robert Peston | 18:20 UK time, Tuesday, 20 April 2010

I have in my possession a copy of the IMF's eagerly awaited paper for governments on how the banks should be made to pay for the costs of future financial and economic rescue packages.

And I have to say that the proposals - which have been sent to IMF members in the past few hours - are more radical than I anticipated.

In the paper called "A Fair and Substantial Contribution by the Financial Sector" PDF (which rather gives the game away), the IMF argues the case for two new levies to be applied in as many countries as possible:

1) A "financial stability contribution" to pay for "the fiscal cost of any future government support to the sector". The levy would be paid by all financial institutions, not just banks, initially at a flat rate but eventually refined so that riskier institutions paid more.

2) A "financial activities tax", which would be levied on the sum of financial institutions' profits and the remuneration they pay.

The proposals are likely to horrify banks, especially the proposed tax on pay.

They will also be politically explosive both domestically and internationally.

Labour is bound to claim that the IMF is implicitly criticising the Tories' plan to impose a new tax on banks irrespective of what other countries do - because the IMF paper says that "international co-operation would be beneficial" and that "unilateral actions by governments risk being undermined by tax and regulatory arbitrage" (the danger that banks will relocate to countries where the tax doesn't apply).

I would also start to question my sanity if Gordon Brown doesn't claim credit for putting pressure on the IMF to launch its review of possible bank taxes.


All that said, the Tories will say their tax resembles the Financial Stability Contribution.

And the LibDems are bound to claim that their proposed tax on banks' profits isn't a million miles from the IMF's profits-plus-pay levy.

Internationally, there will be dissenters. Canada is opposed to any new bank taxes.

And although the Americans have adopted a tax to pay for past bailout costs, it is by no means certain they would want the second financial activities tax.

That said, the IMF paper represents a big step along the way to a new levy or levies on banks everywhere.

I would make three other points.

The IMF would mildly prefer the so-called financial stability contribution to go into a discreet bailout fund rather than into general government revenues.

By contrast, Labour, the Conservatives and the LibDems all want the proceeds of any new bank tax to be available for general government use.

Also, the IMF favours a bold associated reform, which would be to limit the tax deductability of interest, to make debt more expensive and discourage banks, financial institutions and other companies from taking on excessive debts.

George Osborne, the shadow chancellor, has talked about such a reform, but is not committed to it.

Finally, insurers, hedge funds and other financial institutions less implicated in the recent financial and economic crisis would be disheartened that they would have to pay the new taxes.

But the IMF argues that if they were excluded, lots of activities currently carried out by banks would reinvent themselves as insurance or hedge-fund services, for example, to escape the levies.

Comments

  • Comment number 1.

    The only problem is that this will all have to be paid for by muggins me and other regular customers who stupidly pay all our high loan interest and fees and bank charges, leaving our savings to dwindle, whereas the twerps who do a bunk get off with it.

  • Comment number 2.

    "International co-operation" makes it a none starter. It takes one one tax haven to sink any measures. The cost of bribing one or two countries is tiny compared with the "savings".

  • Comment number 3.

    Very good idea if it can be made to work. We also need regulation to stop the banks simply passing this cost on to ordinary people. And regulation to moderate banker's headline grabbing pay, bonuses and the job for life mentality which prevails in banking

  • Comment number 4.

    The IMF is taxing the wrong things. Although a tax on bank salaries sounds politically attractive, it won't work. If an Indian retail bank pays $5,000 each to a million employees, is that the same as an American bank paying $5 million to a thousand employees?

    What should the tax really be based on? There is a much better answer: http://www.knowingandmaking.com/2010/04/is-imf-taxing-wrong-things.html

  • Comment number 5.

    I agree with the comments so far but the biggest problem I see is that this a "tax" and taxes get paid to governments.

    Now it may be that some governments would use the money sensibly but the idea of giving such huge amounts to a British government - especially if we end up with a Labour/LibDem coalition - is utterly horrifying.

  • Comment number 6.

    puzzling,

    So if they run away to tax havens then "we" impose higher taxes on all their business interests in any country they choose to operate in. As long as the poltical will is there then they can run but they can't hide.

  • Comment number 7.

    It just allows the banks to take even bigger risks.

  • Comment number 8.

    I rather like it.
    And the way to make sure financial institutions didn't 'run and hide' in a 'tax haven'? - Ensure that only those institutions registered as paying the taxes/levies are able to trade on the major markets and in the major economies - buoycott those that don't.

  • Comment number 9.

    A "financial stability contribution" to pay for "the fiscal cost of any future government support to the sector".

    What future support ??? there should be none, not one penny of tax payers money should ever be spent to bail out banks.... and as for Labour claiming anything, they should always remember it was them who led our country into this fiasco in the first place the voters wont forget thats for sure......

  • Comment number 10.

    "The IMF would mildly prefer the so-called financial stability contribution to go into a discreet bail-out fund rather than into general government revenues. " I think you mean discrete (separate, distinct) rather than discreet (hidden, subtle).

  • Comment number 11.



    Well done the IMF.

    And well done Gordon Brown whom, it has been rightly pointed out, put pressure on to attain this.

    Just one last step; separation of retail and investment banks.

  • Comment number 12.

    I can't believe it. Lots of support for a tax YOU will pay via the bank to the government of the day to spend how they choose. Personally I couldn't care less except it is yet another tax for me to work out how to avoid but if your all keen to pay for another war, or bank bail out, or MP expenses, whatever, then thats up to you.

  • Comment number 13.

    Given the the way banks operate, this proposal is a good idea. I particularly like the idea "to limit the tax deductability of interest, to make debt more expensive and discourage banks, financial institutions and other companies from taking on excessive debts".

    I'm not sure this deals with the core of the problem though. How can banking (and financial services in general) generate such vast profits in the first place? The core functionality of the financial system (providing current accounts, direct debits, cash machines, basic savings and loans, etc) can be pretty much automated, and in a fully competitive environment I can't see why it should account for more than say 2-3% of GDP. So where does the rest come from? The current claims against Goldman Sachs would seem to indicate that much of it comes from mechanisms that are little different from fraud. Someone is ultimately getting ripped off - and that somebody is probably me and you. The pathetic interest rates on bank accounts, the miserable returns on pension funds and endowment policies. The City has creamed off the money until there is little left.

    There needs to be proper competition. Break up the universal banks. Encourage the mutual sector. Allow a public sector bank (Post Office? NS&I?) to really compete agressively with the private sector. That's what really needs to be done.

  • Comment number 14.

    Comment 1 Onward ho hit it on the head , all businesses do when they get hit with taxes like this is to pass it on to there customers. So not only will we have to pay for the current mess over a number of years but we will also pay for the "kitty fund" as well!
    Best thing to do from the customer perspective is to disassociate yourself from all banks set up Credit Unions and walk away from this racket.
    Stop using credit cards, stop having loans etc then you will be contributing nothing and saving yourself a packet.
    Interesting concept a customer famine for the banks then it will show were the real power is, vote with your feet!

  • Comment number 15.

    Isn't the government currently in profit from our investment in RBS?Leave the banks alone and let them do what they do best for this country!

  • Comment number 16.

    I might be getting this all wrong, but as far as I can tell we are not, as a nation, in debt. You may call me mad, but I believe we are all being had by the banks and the government.
    Let me explain.

    We, the tax payer, have LENT the zillions of pounds to the banks to bail them out so they didn’t fall, in an understanding that they would pay us back with interest. I can walk into a bank, ask for a bank loan and they ask me how I am going to pay it back, how long it will take and want to see all the figures to make sure I can pay it back with a huge amount of interest to boot. So I presume the same thing happened before Gordon Brown and the other world leaders gave the money/loan to the banks, as it would be plain stupid not too, yes? Now if that is the case then the leaders should now know when the money is to be paid back and how much interest they will make from the loan.

    As we can all see, the banks are behaving exactly the same as before, taking huge risks, gambling still and making vast amounts on their bonuses. One would expect the banks to already be paying back the debt as they obviously can afford it. If this is the case then the loan will be paid off in no time at all and the country will be out of debt, which would mean the governments would not need to raise National Insurance, various taxes and so on.

    So whilst I am glad to hear about the reforms planned by the IMF towards future bailouts, there is still little or no news from all the main parties about how and when the banks will pay back the last loan. All we know is that the banks may be taxed on their bonuses which the banks can get around anyway. Unless the banks and the government can show the public how and when they are going to pay back the last loan, how on earth can we talk about future loans/bailouts?

    Makka

  • Comment number 17.

    My goodness. The main reason countries are going broke is that banks and ultra wealthy speculators (derivatives trading etc...) are not taxed properly at all, and wage earners bear the burden. Even a light tobin-tax taxation (in the US for example) could net over $150 Billion in revenue, while banks and speculators stay ultra rich. A taxation, as well as proper regulation would also help cut back on the rampant speculation that is a burden on the real economy. Coupled with neo-liberal policies of outsourcing labour to cheap wage countries, if the tax burden remains on the wage earners the situation will only get worse, as the tax base dwindles due to lack of jobs and lower wages & inflation.
    Its interesting to me that IMF seems to be the net-gainers here (the tax will be paid to them), while for the populations of affected countries, things will only get worse. Implicit in this ruling is that the IMF seems to be anticipating it will happen again! So why not fix the real problem, through proper regulation, and help the real economy by taxing the renter/creditor/speculator class like classical economists have always talked about. Its obvious that 'voodoo-economics' does not work, luck at the present situation .

  • Comment number 18.

    1.) IMHO the IMF shouldn't even exist. So I'm rather worried that this organisation isn't only back on the stage, it now even behaves as if it had been elected to form a global government, suggesting global taxes.

    2.) Another worry that I have is the justification of these taxes. They are meant for future bailouts. Now, one thing that I definitely want for the future is that such bailouts will not happen again, never ever! If we have a global tax to bail banks out in the future, they will inevitably create an even bigger bubble, and no upfront tax will ever be enough to pay for these damages.

    So what we really need is a tax on the banks to recover EVERY SINGLE PENNY, CENT, CENTIME, whatever, that the public have spent on the current crisis. And even more urgently we need national and bloc-wide (EU etc) legislation that actively prevents the bankers from creating bubbles. Their hands must be tied. No country must ever again be able to suck international credit into a housing bubble etc. Money needs to be money again. It needs to reflect and serve the real economy. Anything else will only lead to disaster again, and the IMF suggestion does not at all appear to aim to prevent such a disaster.

  • Comment number 19.

    But ... the Conservatives have already spent such a tax on subsidising marriage (moral policies).

    So if this comes into force, with the fund going into a pot to pay for any bank rescues, what happens to the subsidy for being married. Or do the Conservatives break a manifesto promise. Or is subsidising marriage so important that the money has to come out of pensions or NHS or other expenditure for the general good (but not as important as enforcing their own personal moral views on the population).

  • Comment number 20.

    These proposals do not tackle the basic problem, which is that it is not safe to leave the provision of the credit in the hands of private institutions without strict regulation.

    It was long ago decided that the printing and coining of money should be a public monopoly. Credit plays a similar role in the economy to money. Some financial institutions have behaved very irresponsibly, and in future central banks, or some other publicly accountable bodies, should be given levers which would allow them to increase or decrease the amount of credit as necessary. The relying on the base interest rate to control lending is not sufficient.

  • Comment number 21.

    Well, let's see what eventually happens.

    At least it won't hurt the banks who will simply pass the cost onto customers large and small.

    I don't need a Philadelphia lawyer to tell me that this hogwash wasn't necessary after the 1929 crash. Governments simply tightened regulation. It slowly eroded over the following 75 years. So...this crash happened. And we've suddenly got regulation fever again.

    What worries me is that should these proposals get a foothold it will only take a little hysteria to draw on this money...and will governments have it ready without caning the taxpayer again. Answer: unlikely. So why not get back to what we had in the 70s: the regulatory authority insisting on capital adequacy, leave the banks alone and avoid us paying even more in bank charges and loan fees.

  • Comment number 22.

    This is all fine and good and should have been adopted years ago and there is no sense that it will make through any legislative body as bankers and financial services have a great deal of influence, as we have seen with their indirect ability to tax citizens to insure high profits after gambling away the retirements of depositors.
    The only way to make things work is to assign personal responsibility to CEO's and BoD's that would allow for personal wealth and properties to be attached to pay for mis-deeds when proven in court. The mafia wishes it had such influence in elected bodies and governments.
    The real issue is not to create some fund to provide revenue for governments but to create a process whereby the individual depositor can seek redress for losses created by the bank because of unethical and or illegal behaviors. It was called at one time Personal Responsibility.

  • Comment number 23.

    This is terrible news.

    The last thing that we need to worry about in the next 50 years is another credit bubble leading to another credit crunch. On the contrary, we have been in a credit crunch for two years now and it may continue for a decade.

    The thing to worry about at the moment is how to get banks lending again and able to pay interest to savers.

    Taxing banks is taxing their customers just as taxing a motor manufacturer is taxing the driver.

    Do the four lines above not make sense to anyone?

    Banks do what banks do. We need banks just as much as we need plumbers.

    Below is the two main things that banks do:

    1. We get our big ticket items such as cars, houses and new job creating commercial developments thanks to banks.

    2. We also rely on banks to find a better return on our savings than many of us can find for ourselves. They do this by investing our money with borrowers who need the money because they have a wealth creating proposition that the bank is happy to loan against.

    At the moment the banks have been very badly hit by defaulters and are impaired in their performance of 1. and 2. They have been doing quite well over the last year because, in an effort to fix their balance sheets and get back into the black, they pay little to depositors and charge more to borrowers. In a nut-shell, they pay you next to nothing on your savings whilst at the same time refusing to loan money to your employer to invest in your future.

    The last thing we need is for banks to pay more tax and further impair their necessary activities.

    This would be even worse than our messing with their management and pay structure. They are the bankers. They are the professionals. If they have decided to pay modest wages and a performance related bonus then that is their business and not that of the state or the IMF.

    Does any of the above not make sense?

    Is the IMF reading this?

  • Comment number 24.

    Any negotiator will tell you aim for the moon initially to allow as much wiggle room as possible - what is their real expectation?

  • Comment number 25.

    Why aren't the law firms under greater scrutiny?
    The large London law firms that advised the banks and other institutions about some of the dodgy deals that were undertaken over the past few years should be investigated and be made to pay this “bank tax”. They continue to advise on these deals and were equally to blame for the credit crunch. They should not be able to hide behind the legal defence that they only gave advice and it was ultimately the decision of their clients. They advised their clients to undertake these deals! Some law firms recently said of the credit crunch that they would not advise clients undertaking deals that could be a detriment to society as a whole. I'm sorry but that is such a load of rubbish. They were happy to give advice on these deals for years, happily taking the fees for providing so-called sound legal advice.
    Law firms should be looked at in the same way the rating agencies have been scrutinised. The law firms are not going to lose a client by telling them not to undertake a deal or by giving advice that a client (bank or other financial institution) does not want to hear. But that is why they have a moral and ethically duty to ensure that they do the right thing even if it means losing a client! The whole point of the law society is to regulate the law firms but that institution is run by people who used to run the large law firms so there appears to be a conflict of interest!
    The law firms said they didn't see this coming but then are contradicted by some individuals in these law firms who pronounce themselves as all-seeing economic guru's who highlighted these problems at the time. Law firms, especially those at the top of the tree - the magic circle firms - have better spin doctors than the politicians as they seem to have got away with this scott free!
    Basically, law firms such as the magic circle firms undertook work and did not seem to consider what the impacts were likely to be and were happy to pocket the fees. Securitisation was after all a brain child of the legal world!
    I would also like to point out that for all the talk of social mobility it is the law firms at the top that are really stuck in the past. They hire most of their trainees from a select number of universities, such as Cambridge and Oxford. These "diverse" firms hire people from upper class background as most attend Eton and other similar places. The only diversity comes from the pressure to ensure that a number of token minorities and individuals from poor backgrounds are offered a handful of places.
    There needs to be a root and branch reform of the legal sector starting with a review on what the law firms did in relation to the credit crunch and whether they acted ethically and within the rules when acting for clients over the last 10 years. Secondly, an investigation of the recruitment of trainees, the fairness of the process and the actual diversity of law firms needs to be undertaken. Diversity does not mean counting Aussies, Kiwis and Americans as different ethnic backgrounds! This also brings me to the third area that needs to be investigated. The preponderance of law firms to hire Aussies and Kiwis (in the main) to do the job of qualified lawyers rather that take on trainees. The reason - it is cheaper! There are so many people undertaking their law qualifications and looking for training contracts so it seems absurd that law firms are able to recruit economic migrants from these developed countries. These immigrants are the ones that we never hear about. These are the immigrants that are not really needed. I know that is a generalisation as some are top quality individuals that bring something to a firm. But let’s be clear, the sheer number is too much when we have so many equally talented English educated individuals wanting to be trainees. These students my actually include the Aussies, Kiwis and other nationalities who have taken the time to educate themselves on English law, so it is not an issue of race but rather hiring from this pool instead of looking overseas to the extent they are today. The reason English law students are not given an opportunity are because it costs law firms more to train students than hiring an overseas educated individual. These overseas individuals are not allowed to give advice on English law until they have 2 years experience of working in England and then undertake a short course, but they seem to be able to get around this in the first couple of years by having email signatures that say “New Zealand qualified solicitor” or any other nationality you want to substitute that for.
    The only people that want an investigation into the law firms, as well as the top accountancy firms, seem to be the Liberal Democrats. If I remember correctly Vince Cable mentioned this during the Chancellor’s debate on Channel 4.
    I would say that Robert Peston should investigate the law firms as much as the banks!

  • Comment number 26.

    The whole idea of setting a fund for future bailouts is ridiculous. Where will this money be kept? In a bank? Will be given to governments? They will spend it before it is paid in the first place.

    We know money doesn't actually exist (except as debt), so how does IMF make sure that this "fund" will be there when the whole system will implode again?

    The only solution is separating retail from speculation. There is a reason why this crisis didn't happen between 1933 and 1999 it's called Glass-Steagall act.

  • Comment number 27.

    > The proposals are likely to horrify banks, especially
    > the proposed tax on pay.

    The proposals must be a good thing, if those greedie bankers
    hate them. If they could pass the costs on, they wouldn't care.

    They know they can't pass them on, especially after we've
    broken them up. Good old Vince Cable, eh?

  • Comment number 28.

    # 23. At 9:16pm on 20 Apr 2010, David Lilley wrote:


    > Taxing banks is taxing their customers just
    > as taxing a motor manufacturer is taxing the driver.

    They'll have to pay it from the bonus pot. If
    they thought they could pass it on, they'd be happy.
    Do you see them being happy? Nope, I thought not.

  • Comment number 29.

    This was proposed some time ago - it came from that bankers meeting in Davos or wherever it was: the idea that the bankers would themselves all chuck into a pot to bail themselves out when the time came, recognising that the prevailing system needed periodic bailouts, but that Mr. Taxpayer wasn't gonna do it no more...

    This SUCKS!

    The bankers hacking together a short term piece of garbage solution that a two year old monkey could think of, and then have a BBC journalist call it radical, at the expense of us consumers and just to fund these jackass's expensive lifestyle is taking the mick in a monumental way.

  • Comment number 30.

    #26

    "The whole idea of setting a fund for future bailouts is ridiculous."

    Perfect, succint.

  • Comment number 31.

    Use social funding. Smash the banks.

  • Comment number 32.

    These proposals are surely political more than economic. They are bank-bashing; almost as easy a target as politicians or, dare I say it, the IMF. All these were complicit (as are consumers) in the credit explosion and collapse. There is, as another of your commentators asserts, no reason not to tax the huge law firms (or by implication management/strategic consultants; accountants etc) that have grown fat on the fee-inflation caused by banking pay. They all signed up to and signed off the bankers works. I am not supporter of such excessive pay in banks, but I do recognise that it was their taxes that paid for our NHS, Defence, schools and other public sector expenditure the leviathan that has grown so in the last decade
    It is time perhaps to let the banks be banks and stop punishing them. I can think of few, if any, free societies who have enhanced the life of the disadvantaged by surpressing the entrepreneurialism of business.

    This is a bandwagon that we should ignore.

  • Comment number 33.

    The IMF is and always has been a tool of financial oligarchs.

    This is just another wealth transfer scam that will mean ordinary savers receiving less interest or the introductions of charges for deposits that will be funneled to this vehicle and distributed to the financiers via bailouts, meaning they can continue their overall wealth transfer scam of blowing bubbles, skimming the top, crashing the market and taking wealth from the the underclasses.

    Neo-feudalism

  • Comment number 34.

    The curious question here is: Why is the IMF giving recommendation to the UK government?

  • Comment number 35.

    @18 - I agree with you.

    So we give over the running our banking system to the unelected IMF? Who then create the ultimate moral hazard of a specified bailout fund?

    Won't this be a bit like the FDIC fund in the US, thats got some ridiculously huge exposure?

    It looks to me like a race to the bottom, followed by a world currency.

  • Comment number 36.

    Call me old fashioned but before the old western financial elite try and impose a sticking plaster approach to the continuing haemorrhage of cash in the failed global banking and finance system should they not ask the new inheritors of global financial power what they think? I speak of course of the Chinese who will have looked at the past two/three years in horror as they map what such chaos would mean for their newly emerging mass middle and working classes' wealth and savings. They will calculate a different reaction from their population and will therefore insist on a much more robust system based upon real retribution. Current practice in their justice system should give some idea as to where their thoughts will be.Even a cursory analysis shows that they hold all the best cards.Consultation would seem to be the least we should be doing.

  • Comment number 37.

    The banks really can't complain, no matter what governments may throw at them. (Providing it's done internationally).
    They've had their necks saved by the public in many, many countries, in a way that would not have happened for any other industry.
    Capitalism must be seen to be fair, or it will slowly go down the pan.
    I hope that all the banks and financial institutions thrive and prosper in future.....but they must surely be aware that there is a bill to pay for their rescue.

  • Comment number 38.

    Cant see this heppening across the board - why - one word Canada.

    One of the few 1st world nations whose banks did not do a belly flop during the crisis because they were run and regulated in a risk-averse way. These guys will be penalised by the actions of all the other banks who had to be rescued (and which we are still paying for). I can't see how Canada will accept this (it actually is extremely unfair)so why wouldnt lots of banks relocate core activities there and avoid the taxes thus losing the taxes in the first place.

    Best way forward is to split up retail from commercial activities so none are too big to fail anymore.

  • Comment number 39.

    This proposal(if that's what actually see's the light of day) is a re-assuring step in the right direction. Governments must surely realise that a laissez faire attitude to the financial markets is exactly what lies behind the present financial crisis. For far too long the finacial sector has being treated as a sacred cow whose anatomy and physiology are far above the ken of everyday mortals.

  • Comment number 40.

    What a load of codswallop.
    The banks will merely lose a smidgen of their profits but meantime increase their charges etc to pay the tax.
    They will also shed crocodile tears whilst doing so.

    The only way to regulate banks is to increase their capital requirement.
    Year on year. Year on year.
    They will of course cry foul.
    And?

    But of course governments will then resort to state banks creating and giving credit.
    They are doing that now on a small scale in the regions.
    Jeremie funds etc.
    All politically motivated.

  • Comment number 41.

    The legal presumption in financial instruments needs to be reversed; to the presumption that all buyers should have all of the risks explained to them and failure to do so should render then contact null and void.

    That would be the most successful way of stopping abuses of information in markets. (Preventing the deliberate marketing of toxic CDOs etc.)

    No matter what is also done with taxing transactions so long as there is no control of the construction of contracts the bankers will find their way round them.

  • Comment number 42.

    #36
    China maintains a separation between commercial banking and the securities industries. In the aftermath of the financial panic of 2008–9, support for maintaining China's separation of investment and commercial banking remains strong.[Wiki]

  • Comment number 43.

    In traditional fashion, the more obvious answer escapes Jacques Cartier again.

    Perhaps a large number of people who work for banks actually want their clients to benefit from the best possible prices. To be able to access the credit they need to keep their businesses afloat. To raise the funds for investment through bond issuances and to manage their currency and interest rate risk through swaps. And not to have a large fund put aside to be administered by whom? For what particular purpose? Is the fund "untouchable" except in a "credit crisis"? Who decides the existence of the crisis? etc. All sounds suspiciously political to me, and given my recent and frequent assertions that it was primarily politics that got us into this mess, I find it difficult to see how more politics will get us out.


    Perhaps it is only the likes of Jacques, snug in his bunker somewhere near Grenoble, feeling particularly self-important, who actually wants to see endless misery heaped upon businesses small and large out here in the real world, so that he can puff his chest and say "I told you so".
    But we all know that isn't the case. It's definitely WOTW as well, at the very least.

  • Comment number 44.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 45.

    It’s not that Canada is (totally) against a bank levy, it’s just that Canada thinks that tough new bank capital rules should take precedence. Canada has always been BIG on banking regulation.
    Apparently, there is supposed to be a sideline event in Washington between G-20 countries and IMF.
    The IMF and the Financial Stability Board (FSB), is going to present to finance ministers methodolgy on dealing with banks "too big to fail" which will protect taxpayers from any future bail-outs.
    However, Canada, any several other central banks see priority #1 as Basel III, though they are not really resisting a bank levy; they just want any bank levy to come after implementation of Basel III. The IMF and FSB are suspicious that the intent of a bank levy imposed now is not so much about bail-outs and taxpayers as sapping the momentum on Basel III. The G20 has agreed to introduce Basel III — a much tougher version of the existing Basel II and do it by the end of 2012.
    Some banks want a delay (Guess which ones from where?), saying economic recovery could be threatened, but economic recovery is already threatened by lack of capitalization, toxic debt and lack of lending. The Basel Committee on Banking Supervision, which drafted Basel III, is also studying possible capital surcharges on large, risky banks.
    The side-meeting will also discuss the fraud lawsuit filed by the SEC against Goldman Sachs.
    It looks like the IMF has a preference for a bank levy as opposed to a financial transaction tax, and that doesn’t make me altogether happy because I wanted a tax on all foreign transactions, especially to get that precious audit trail that might one day be needed as evidence against fraud and other nefarious financial tricks.
    Recent G20 correspondence has also stressed the need for everyone to apply the existing Basel II accord by 2011 as a first step — a reference to unease in Europe that the United States is still “lagging” (understatement).
    The FSB and Basel are anxious that G20 countries hold their nerve in the face of lobbying by banks and some countries (Guess which ones.)

  • Comment number 46.

    Fantastic that the fundamental point that "debt is publicly subsidised by all of us" has been recognised.

    Let's hope this idea gains some traction.

    If you don't understand this.... that our government rewards people for getting into debt, and that the whole system is biased to help those who want to borrow now, rather than those who want to save up until they have the money, then here's the example.

    Two exactly similar companies with two similar products start up in different parts of the country with similar amounts of money, although one is financed wholly with debt, while one is financed wholly with equity.
    They both make exactly similar returns equal to double the interest that the one company pays on its debt funding.

    Great, you think, so what?

    Well, so... the company funded 100% with equity pays exactly double the tax of the company funded with 100% debt.

    i.e. it pays to get into debt.

    What mugs we, who try to save up and then bet these savings as equity in a new start-up company are, compared to those who get into debt! We've got the whole government system against us.

    A few implications....

    If there is just one explanation for the Private Equity boom it is this..... that all the PE guys have been doing is playing the arbitrage game on this loophole in the system. By taking lowly indebted companies and leveraging them up as far as possible, they have simply been collecting the taxes that should have been paid to the government into their own pocket!

    Simple really.

    Which will mean of course the end of Private Equity if tax deductibility of interest is removed.

    It would also get rid of this ridiculous situation where so-called risk free debt is supposedly cheap as chips, while equity costs a fortune, which is bonkers.

    Last point.....

    The banks will be desperate to protect the status quo, of course, because this public subsidy of debt really encourages us all to get in hock to them, whereupon, as we all know perfectly well, they can then start to turn the screw and extract supra-normal rent and profits from us.

    So there it is.... our government's public subsidy of debt (.... this is our own money being used here, for heavens sake!) is helping to deliver us into the hands of the bankers to enslave us all.....




  • Comment number 47.

    #11

    Brown had nothing to do with this although I do agree that he will try to spin so that it seems he did.

  • Comment number 48.

    Hmmm.....

    As a soundbite it feeds the hounds baying for blood and the good old IMF get their hands on loads of dosh instead of it being spent by individual governments. Six of the best for banks.

    BUT

    Surely this is just a global insurance policy with the premiums being given back to any failing bank from a central IMF bailout fund? Who will get the interest on these massive premiums? Who decides if a failing bank gets a bailout?

    Why, oh why is a fund like this proposed, when the greed, wheeling and dealing from banks hasn't been stopped?

    The processes that caused this whole unholy mess are still being allowed to go on.

    Any monies collected should go into a victims fund for all those who've been made redundant, lost their homes and/or businesses as a result of the feeding frenzy that caused the world to crash to its knees.

    I'd have thought a global strategy should have been suggested to stop the risk taking dead in its tracks, or at the very least, separate the high octane banking from the day to day stuff that we all need to function.

    What a total farce!

    Bank tax dreamed up by bankers and those afraid to make them go cold turkey.

    (But then, what can we expect from the person who claims ownership of the whole idea? After all, he saved the world didn't he?!)

  • Comment number 49.

    As a previous poster mentioned, if the IMF gets this agreed, it rather spoils the Conservative and Liberal proposals. Neither will be able to deliver some things from their manifesto because this income stream will have been removed!

    So I guess that Gordon Brown will agree instantly (well he says it was his idea in the first place, so he can't very well vote against it, can he?).

    This close to an election either he shouldn't be allowed to make decisions and sign any international agreements or David Cameron and Nick Clegg should go with him!

    How much more damage is he going to do before May 6th?

    Heaven help us if he's still PM afterwards. Frankly, I don't care whether we have Cameron's Conservatives or Clegg's LibDems-just not Labour and Gordon Brown.

  • Comment number 50.

    Morning Robert,
    I see you are still keeping the pressure up on banks protesting too much, keep it up!
    May we have an article to counteract the Vox-pop which is circulating that we are now in profit on our investment in bailing out the UK banks?
    This reads to me as ... we are now several hundred millions in profit on our shares in RBS and LLoyds however, don't we have liabilities in the hundreds of BILLIONS in both of these banks?
    We need some Peston clarity to be injected here and not some election sound-bites which (trust me) the public at large would prefer to believe.

  • Comment number 51.

    50. splendidhashbrowns

    "don't we have liabilities in the hundreds of BILLIONS in both of these banks?"

    ++++++++


    Very good point. Is one of the problems with this whole crash is that the size of the numbers is incalculable?

  • Comment number 52.

    This was a report requested by the G-20 on how, IF they were to impose any levies on banks, these should be structured. Saying that the IMF is advocating such levies is misleading - even if it makes more headlines than explaining the truth. It is sad that the BBC and its editors insist on framing the document in this manner.

    The only question is, whose interests are served by this leak? Since the document was so confidential that even IMF staff did not know its content until the leak, it must involve high officials in a G20 government wishing to argue it is the IMF, not them, that is imposing new taxes. I couldn't help but notice that it was not CNN that made the leak - indeed CNN doesn't even mention the report on its Business website. So it looks like this was for British consumption.

  • Comment number 53.

    How much are we going to tax the other architects of the banking crash...W Clinton and G Brown? And do the architects of the (so called) solution - the Scandinavians -(sorry Gordon, no points for plagiarism)get a rebate?

  • Comment number 54.

    Capitalism was/is a great system..the whole sharing of risk and pooling of gain idea--but almost unnoticed the whole thing changed and became skewed incorrectly.

    (I don't mean it is still un-noticed--since the mid nineties at least there has been a decent level of noticing things were wrong going on---it's just that none of it occurred in London and Washington apparently)

    Shareholders for instance don't really act as 'owner-shareholders' would in a business--moderating their executives, controlling their pay, overseeing the strategic direction of the 'way the company is going'---- partly because many shareholders are 'in the club' but also because the trading side of the stockmarket became 'the point'.

    So I am with those seeing this IMF tax as a step in the right direction.... but the underlying issue is that the way capitalism has become structured. Simply allowing the banks to clatter along with the 'Alibi' of this tax----and having governments or supra governmental organisations like the IMF suddenly gaining their own chips at the same table and gaining more 'interest' in the game doesn't, at least in my opinion, adress that fundamental issue--- of capitalism itself functioning incorrectly.

    The bad effects of the 20 year spree trying to haul cash from a further and further distant future---ie our children,--itself built on, and speaking to, this much longer movement of mutation in capitalism; are nowhere near played out I fear... discussing the 'credit crunch' and recession in the past tense may soon more clearly appear to be a mistake...


    Back to work!

  • Comment number 55.

    Load the one sector of the economy that is making money with extra taxes.

    No endangering the recovery there then.

    Instead of rewriting the laws of capitalism to insure against company failure, just make banks smaller, let them fail and use the BOE to stop asset bubbles inflating and let them deflate them when they do.

    We are punishing banks when it is governments in the US and UK which blithely ignored warnings of a property bubble who are to blame and it is the actions of the Bush's, Browns, and Greenspan's of this world that need scrutiny.

  • Comment number 56.

    This is all very well and good but it will be 'us' the consumers who cover the cost by paying higher premiums to the insurance companies and higher charges in banks to cover their taxes.

  • Comment number 57.

    I'm broadly in favour.

    It would need to be done internationally or the spivs will just move to countries which have less taxes.

    One option (as suggested in the text) would be to use some of the money collected for the inevitable future bail-outs. Then make it clear that the bail-outs only apply to banks based within the taxed countries. If you want to invest your money in a low tax bank/country, fine, but you shoulder the risk. No repeat of people putting money in an iceland bank then thinking the UK government has some sort of responsibility.

    I think the model should be something akin to compulsory insurance, with the government/taxpayer expecting to make a reasonable surplus on the deal.

  • Comment number 58.

    I must say I only look at IMF when I have to collect financial DATA on any country. I use them as a source. For me IMF has lost credibility as they have failed badly. In short IMF is running SHORT on good IDEAS and just playing populist game.

    I don't think IMF has the ability to Build the Foundation of a healthy and sustainable global economy.

    And with regards to the market itself I am now of the opinion that just like our body the market has its own immune system which is mostly driven by confidence, investor’s sentiment and market psychology (the mood of the market). And a positive mood with a quarter of positive numbers could BOOST that immune system significantly which could translate into surprises on the UPSIDE. In other words it is similar to a doctor getting pleasantly surprised by a quick recovery made by the patient. Also the placebo effect is well documented and I believe the positive Investors sentiment and market psychology has a similar affect on the markets. As we know Investor sentiments, confidence and market psychology do play a major role in moving the market both ways and why shouldn’t they after all the markets are made up of human beings and run by human beings so it will be affected by the human psychology.

    Do check out a good post titled " Market Psychology and Investors sentiment (mood of the market) – The Driving Force Behind the markets " and " Building the foundation for a healthy and sustainable global economy " on Sonykumar's Blog ( search for it on google or yahho ) . I hope you find it an interesting read.

    Cheers

  • Comment number 59.


    Anyone with half a brain knows that companies don't pay taxes. They might hand over the money but ultimately it's the working person in the street who actually pays it, whether in the form of higher prices, more charges or whatever.

    Putting the money into general government coffers isn't going to help a whole lot - they'll waste it on the latest pet project only to find there's no money left when it's needed.

  • Comment number 60.

    # 43. At 10:38pm on 20 Apr 2010, LePlonk wrote:

    > the more obvious answer escapes Jacques Cartier again.
    > Perhaps a large number of people who work for banks actually want their
    > clients to benefit from the best possible prices.


    Nonsense - like all businesses, banks want their customers to pay the
    highest prices! That's what middlemen do, the whole world over.
    You'd be surprised how many businesses are mere middlemen like the banks,
    adding little value. I was rather hoping automation and the Internet would
    be the first to crush banks down, but now we've got to finish the job
    ourselves.

  • Comment number 61.

    #25 I do so love your law firm rant, maybe I should confess I am a lawyer and have been involved in trainee recruitment for the last 15 years.

    Lets deal with suing the lawyers - please do so, it will make me more money. If the deal was lawful then the lawyers are perfectly entitled to advise , if the deal was illegal then lawyers have to tell the client that and change it so it is legal, if they do not then they will get hauled in front of the disciplinary committee. Your problem is that the deals were legal but you do not think they should have been. Lawyers are not responsible for the law, politicians make law not the lawyers so blame them.

    As for your recruitment rant you are so far behind the times I do not know where to start. At the top law firms they recruit on the basis of innate intelligence, talent and hard work. Ethnicity is irrelevant - after all our clients come from all sorts of backgrounds so why should all the lawyers be white, male and middle class. Yes we do recruit mostly from the top universities but that is because in general the brightest people go to the best universities, we would never exclude a candidate simply because they went to a funny supposedly second rate university because the very best candidates from that institution is highly likely to be very good indeed. However we do get several hundred applications every year. Candidates who present an application form littered with spelling mistakes, "identi-kit" applications which give no clue as to why the candidate wishes to join our firm (as opposed to any one of 50 other firms) or are simply incoherent do not get interviews no matter where they are from.

    An international law firm will recruit internationally. The simple fact is that we can get very high quality experienced lawyers from Australia, New Zealand and South Africa for the same price as our newly qualified expect in salary. Take it from me, the experienced Aussie is a heck of lot more useful than the inexperienced Brit. We comply with all immigration processes. If you have a problem with immigration take it up with the politicians, the lawyers do not set the rules, politicians do. As a law firm we are not a charity but an international business, if I am allowed to get the quality of staff I need internationally and that is the cheapest route for me then that is what I will do - but so would any other business in any other sector of the economy

  • Comment number 62.

    # 37. At 10:18pm on 20 Apr 2010, stevewo wrote:

    > but they must surely be aware that there is a bill to pay for their rescue.

    They would try to pass it on, unless we take it out of their pay in an
    exponential way. I'd like bankers to get huge bonuses, as long as we
    get 90% tax from it so I don't have to pay up. And they could pay the bill
    down in 40 years, so that's something for them to look forward to.

    The first one to go after is Sir Greedie.

  • Comment number 63.

    This is like giving the banks a get out of jail card, surely a better way of preventing these sort of problems would be for the banks and other financial institutions to have to take out their own insurances. This could work like car insurance, drive the banks as they should be driven and reduce your insurance costs year on year. Fail and you lose your no claims bonus. Simple

  • Comment number 64.

    There should be a new tax on banks!


    It's been widely discussed around the world as the Robin Hood tax - it too can help save banks but also help fund other projects that are underfunded in every country around the world - it really is a no brainer.

    Only thing is, that anyone working in the financial sector facing any sort of new tax is gonna be unhappy and no doubt cry off childishly and selfishly.

    Time to grow up and feed the world :)

  • Comment number 65.

    I am horrified that everyone is assuming that there will automatically be a rescue package for any bank that goes bust. There's no such guarantee at the moment, and the government should only act if it is in the public interest to do so. It is perfectly possible for banking accidents to be completely beyond rescue without damaging government finances, or indeed possible but not necessary to the public. In such cases the government should simply say "no thanks".

    If the hidden assumption in this new tax idea is that we are automatically bound to rescue any stricken bank, then the whole idea gets thumbs down from me.

  • Comment number 66.

    Rant:

    I am horrified that people and particularly some stupid politician have no understanding of what this means for them.

    The result, if not the aim, is to discourage risk taking.

    If you want business to grow you need to support risk.. no risk = stagnation and decline.

    These "BANKS" as people like to collectively call these widely diverse companies provide that risk money which keeps business going.

    Having just come out of a recession companies need to grow. They need to borrow to do this and this borrowing is risky.

    These proposals simply raise the cost of that borrowing and slow recovery.

    If you don't think that affects you then think again... YOU will be paying this tax on EVERYTHING you cannot avoid this being passed on because all business cost will be increased.

    You think your mortguage will cost the same?... IT WON'T this will push up the base rate and hence you mortguage cost.


    So why is this stupid stuff being put forward?

    The government in huge debt... It must raise money to maintain its current size but know this will be deeply unpopular.

    The Government knows that by applying this tax on risk taking finacial instutions, this will affect all companies and individuale that borrow (THAT INCLUDES YOU) hence they are simply using the bank to indirectly TAX YOU, to fill up their mismanaged coffers.

    How lets take a realistic view as to how we got here:

    we have just gone though a recession ... was that the banks ...no that was you borrowing too much from the banks...did people and banks take silly risk ...yes they did... but the recession was still just a recession, it was predicatble...it comes from over expansion.

    What happens after a boom ....well if the boom is badly managed you get a recssion...Now politically this is bad news so it has been convienient to have a scape goat to blame. Targeting the banks is politcally good because a lot of people that work in bank make good money so they are easy to demonise... It's a cheap tactic, much like using the nationalist card, but it seems to work to draw the attention away from the real problem in the economy and to draw fire from the government.

    Did we have to bail out all banks ...no just the ones that made bad business decision and yet we are going to cripple the whole finacial system by trying to make it risk averse.

    If you are in favour of this kind of proposal happening then I suggest you have a long hard think about how you make a living and where your money comes from.

    If you truely believe that this does not affect you then I would suggest that you do not see the bigger picture around how the monetary system works.

    /Rant






  • Comment number 67.

    It is interesting to note the Canadians did support a bank tax, stating this would allow banks to continue to offer economicaly harmful transactions to occurr while being pardoned by the tax imposed. It would be more sound to regulate banking activities to ensure safe management for the economy as a whole. The bank tax is a way for the rich banks to placate the public, while still able to dupe the individual. Canadian banks by the way did not require any public tax money to stay afloat during the recent reccession. Canada faired the reccession better than any other 68 nation. Dont listen to bought politicans trying to sell the banks pitch to a nation who voted them in good faith. Politicians were hired by you, banks make their money off you, you should let your opion be known. Get educated, read opions from others, and stop the manipulation of the honest everyday man to the few who choose to exploit such trust.

  • Comment number 68.

    ALL businesses have just ONE source of income, CUSTOMERS. That means the man in the street. It is difficult for me to get my head around where will we get even more money from? The whole system seems broken to me, money is what it has always been, a form of bribery. However, it is what we have and it is what the majority of us have decided as being a good way of getting what we want, I am not sure that it will work with people who take our money and say it is for our own good and then renege on us. No business should have the comfort of 'being too big to fail'.
    As consumers will pay for the fund let it bail the consumers out, not the bank!
    One less bank may be a good thing, eventually only one may exist!
    Oh dear, a bank of the people, by the people for the people!

  • Comment number 69.

    Goldman Sachs and The Royal Bank of Scotland.

    The American Security and Exchange Commission has recently charged Goldman Sachs of collaborating with a hedge fund called Paulson and Co.. Goldman Sachs (hereinafter GS) sold it’s clients a complex financial instrument called a “Collateralised Debt Obligation”; (hereinafter CDO). This CDO was structured by adding together sub-prime mortgages. These mortgages, for a variety of reasons, were very likely to fail. In which case those who bought the CDO were liable for any unpaid mortgages, or debts.

    As Paulson knew that these CDOs were liable to fail, they bet on failure, correctly as it turned out; and made a fortune. The clients of GS included the Royal Bank of Scotland (hereinafter RBS) made great losses; and RBS had to be bailed out by the Treasury.

    The moral issue here is why did GS not tell its’ clients what it knew from meetings with Paulson. Specifically, that the CDOs were designed to fail, and cost the purchasers; but make fortunes for Paulson? GS’s defence is that it lost money on their deal with Paulson; about $90 million, and received a fee of £15 million. This produced a net loss of £75 million? How significant a loss was this for GS?

    The charge brought against GS has affected their share price, and their reputation. The chief executive had claimed that GS was doing “God’s work”. They now appear to have been acting against their clients’ interests.
    Were the clients, including RBS, told that the CDOs were originated by Paulson? Were the clients told that the CDOs were based on sub-prime mortgages? It has been argued that other banks other than GS were behaving in the same way. This may allow a defence of normal business practice. This is a dangerous defence as it may bring legal charges against other banks. But that should not stop this case proceeding.

    Please see my blog at: whyworktoday.spaces.live.com/blog/

  • Comment number 70.

    #48

    Exactly what I was thinking - and if this just a giant insurance scheme, won't it have to pay the tax itself?

    Who will bailout the IMF?

  • Comment number 71.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 72.

    I simply love the sound of the “financial activities tax” and "financial stability contribution", but I would love the idea more, if this would certainly damage banks and not us, tax-payers. Banks should not have difficulties in paying these taxes, but they revolt about this proposal of the IMF. Of course, who would like to pay extra after a long time of not needing to give away what comes in?
    The bold associated reform of limiting the tax deductibility of interest supported by IMF might discourage financial institutions, companies and banks from taking on excessive debts, but this reform will be certainly taken on a lower level, to households and tax-payers, who are managing to live properly with the help of loans. If the debts implying banks and monopole financial institutions will be more expensive, the debts for people will also rise, all starting and continuing a vicious financial circle, from which you might guess who will come out as a winner.
    Of course banks and financial institutions should pay more. They should pay these two big new taxes, but not these financial powers will suffer, but us. The taxes and raises are supposed to discourage banks from further taking on excessive debts, but if they will have to pay these taxes anyway they might raise risk limits higher. So which solution is the best?

  • Comment number 73.

    I rather like the IMF’s optimism that the Financial Activities Tax (“FAT”) would be “relatively straightforward to implement”. This will be the most complex piece of legislation ever enacted. Good luck the IMF, you will need it.

 

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