Germany's Weber says tax on banks is 'inferior' instrument

28th May 2010, Comments 0 comments

Imposing a tax on banks as a means of reducing risk to the financial system is an "inferior instrument" German central bank head Axel Weber said Friday.

"Even though such a tax could be useful in recouping some of the costs of the crisis, it is an inferior instrument in terms of internalising the effects of risky activities on financial stability," Weber told a central bank seminar near the western German city of Wiesbaden.

Weber is also a senior official at the European Central Bank.

In a reference to a recent German government decision to ban naked short selling of certain securities, Weber said "the complete prohibition of certain activities is a very far-reaching market intervention, especially since these activities do not necessarily have zero economic value-added."

Germany's financial regulator BaFin last week unveiled a ban on naked short-selling of certain stocks, eurozone government bonds and credit default swaps, a kind of protection against default by state borrowers.

Naked short selling occurs when an investor sells a stock or other asset he does not own or has not even borrowed, aiming to buy it back later at a lower price to pocket a profit. It can create highly damaging volatility on financial markets.

But Berlin came under fire for the move, with critics saying that Germany had failed to inform properly its partners in the European Union or in the Group of 20 top global economies beforehand. It also rocked financial markets.

© 2010 AFP

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