Webcasts: Taxing Times for Banks
Title: Taxing Times for Banks
Date: 26th April 2010
Location: London, UK
Last week the IMF released a report which proposes taxes on financial institutions. Barbara Ridpath, CEO of ICFR, appeared on CNBC to consider the outlook for the financial sector.
On her opinion of the tax introduction she, firstly, replied that despite governments not coming to the agreement on how they would carry out a cross-border rescue, they are trying to fund it. This issue, although not raised much in the last few weeks, is relevant: not coming to an agreement on cross-border rescue but still funding it could give banks the feeling that they are being protected, thus increasing the risk of bailouts.
Furthermore, she suggested that one reason for the proposal to introduce taxes could be a result of politicians trying to demonstrate to voters that the public is getting back that money was put into the system during the crisis. Also, she reiterated that there is a breakdown between the two blocks of countries regarding the IMF’s tax proposals: continental European countries and Canada on one side (which are against tax proposals), and countries with significant bailouts such as US and UK (which are for the introduction of bank taxes). On what she would recommend policy-makers do, she replied that we should take ‘step-by-step’ approach: we should hold on for now before we do anything else. We should let capital, liquidity and leverage charges settle first before introducing significant bank taxes. If you can get capital adequacy and living wills right, then there is no need for taxes. She also thinks that cross-border resolution proposals in the EU is a good example of how to combat future crises without the need to introduce taxes; however, Europeans have not got the rest of the world on board yet. Lastly, she was asked about OTC derivatives and financial regulation in the US. She thinks that the Democrat Party (who were the initiators of the Bill) have the public on their side and that the unwillingness of the Republican Party to pass the Bill could make them look like a ‘party of business’ immediately before the mid-term elections in November. This should incentivise the Republican Party to compromise and reach a deal on the Bill.