British watchdog eyes tax on banks to curb bonuses
Excessive risk-taking, with massive bonuses for bankers, has been blamed for helping spark the global financial crisis that led to multi-billion dollar bank bailouts.London – Britain's financial watchdog on Thursday waded into an international row over bank bonuses ahead of a G20 summit, saying it would support moves to impose extra taxes in an attempt to curb excessive pay.
"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes," Adair Turner, chairman of the Financial Services Authority (FSA), told Prospect magazine.
"Higher capital requirements against trading activities will be our most powerful tool to eliminate excessive activity and profits.
"And if increased capital requirements are insufficient I am happy to consider taxes on financial transactions," Turner added.
Excessive risk-taking, resulting in massive bonuses for bankers, has been blamed for helping spark the global financial crisis that led to multi-billion dollar government bailouts of world banks.
A meeting of G20 finance ministers next week, before a summit of the world's biggest economies in September, will discuss the issue of bankers' bonuses.
"G20 Finance Ministers will be discussing bonuses which put the banking system at risk in London next week," a Treasury spokesperson told AFP, but would not be drawn on Turner's comments on taxation.
French President Nicolas Sarkozy on Wednesday said he would call for limits on bonuses after winning a commitment from French bankers for a system of performance-related pay for traders.
Elsewhere, a forum of bank supervisory authorities on Thursday released principles for new bank accounting standards ahead of the G20 summit.
In Britain, Turner criticised some activities of London's financial sector as "socially useless" and questioned whether it has grown too large.
He told Prospect that so-called Tobin taxes would cut banks' profits and reduce the pool of money available for bonuses.
A Tobin tax is a small tax on foreign exchange transactions, originally proposed by US economist James Tobin in the 1970s to discourage speculative trading.
Turner said the level of pay in the sector may be caused by "over-simplistic financial deregulation", describing this as the "really fundamental question".
"This is not a question that any of the politicians have focused on but I think it's an important and legitimate issue of public concern," he said.
The British Bankers' Association (BBA) hit out at Turner's comments, saying "the wrong kind of regulation or the wrong kind of taxes" would drive business abroad.
"That would mean the UK would receive less revenue through taxes and there would be job losses, not just in the banking industry, but also in all those other businesses, large and small, that provide services to banks.
"On so many occasions in the past the country has lost chunks of industry through making the wrong decisions. Let's not do that again," the BBA added in a statement.
Turner's comments were published Thursday in current affairs magazine Prospect.
The Guardian newspaper said such plans were recently put forward by anti-poverty campaigners, with tax revenue channelled to helping support developing nations.
The comments come after the FSA earlier this month outlined new rules on bonuses for banking executives, unveiling a new code of practice that begins in 2010.
Analysts argue that large bonuses—particularly in Europe and the United States—damaged the ability of leading bank executives to take well-judged business risks in the run-up to the meltdown.
AFP / Expatica