Friday, January 15, 2010

Economics: 15/01/2010: Bank levies

Per FT report today, the US administration is likely to impose a levy on the banking sector to recover. Per President Obama, "every dime" owed by the banks to TARP. The levy will aim to raise $90 billion from the 50 largest institutions in the US, including those with foreign operations in the country (a point that raises the issue of unfavourable treatment of the foreign banks which had no access to TARP and yet are expected to pay for it). 60% of the fee is expected to be generated from the top 10 institutions – another strange feature of the plan that skews the burden of the proposal toward larger banks despite the fact that there is no evidence they benefited disproportionately more from TARP funding. The levy – envisioned for 10 years period – is being set at 15 bps of all insured debt other than deposits and will apply to all institutions with assets over $50 billion. Of course the net effect of the levy will be a higher cost of banking for the end customer.

One can rationally expect the EU to follow the US suit and slap more charges on already stretched taxpayers/consumers.

Bashing the banks is a happy past-time for our commentators, politicos and regulators who have been calling for higher levies on the banks. But anyone with economic stability and growth on their mind should really think as to where the money for such levies will be coming at the end.

Irish banks are in no position to pay the Exchequer for any support out of earnings, so it is us – common banks customers and, co-incidentally the taxpayers – who will be tasked with paying DofF the going costs of banks guarantee scheme, Nama and any other levies the Government might impose on the banks.

As one cannot escape this charge on his/her account, it will be an involuntary transfer from the private economy to the state. Care to call it a new tax, then?

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