The International Monetary Fund recently announced plans to levy additional fees on banks.
The first tax, which would be imposed on all financial institutions, not just banks, would initially be charged at a flat rate although it would eventually be modified so riskier institutions were charged more.
The second financial activities tax, appropriately abbreviated to FAT, would be levied on the sum total of the financial institutions’ profits and the remuneration they pay staff, including bonuses.
The move has been welcomed by the main political parties.
The aim of the taxation is not only to recoup the money that governments around the world have lost in propping up the banks, but also to ensure there is sufficient money in place to support the banking system if such a thing happens again.
Why do bodies such as the IMF not learn? Having a contingency plan in place for a collapse is one thing, but over-taxing to speed up such difficulties is quite another.
Its time, and that of governments, would be better spent on working out a more suitable governance for banks to ensure key decision-makers are experienced and capable of making decisions.
They need to ensure they have robust processes which will prevent any future collapses rather than putting a pot of cash in place to bail them out when it goes wrong again.Who is going to pay for these tax rises?
Investors and shareholders will switch their portfolios to move out of banking, thus weakening the banks
The IMF says the banks, but this is nonsense.
The British Bankers’ Association has warned that the moves of the IMF could have a big effect on the profits of UK banks. But that’s OK. The banks make too much profit as it is these days, they pay their staff too much, and they take unnecessary risks.
Well perhaps, but banks are proprietary institutions, owned by shareholders. They won’t stand by and watch their profits flow away because of increased taxation without doing something about it. And shareholders have a lot more clout to effect change than any trade union. Investors and shareholders will simply switch their portfolios to move out of banking, thus weakening the banks and potentially putting them at a competitive disadvantage.
Alternatively, they will call for higher margins to recoup the additional taxation, thereby hitting consumers right in the pocket.
Mortgage rates will increase to compensate for the need for the banks to raise additional funds, and the man in the street will bear the burden. Any tax on banks will indirectly tax consumers. It’s unavoidable.
In the past few weeks I have engaged in discussions with several companies that I have identified as potential partners in business.
I have established many professional contacts from solicitors and accountants, and have done all I can to ensure my business won’t need to be propped up or bailed out.
The need to create positive relationships, develop contacts throughout the industry, diversify and maximise every opportunity has never been more apparent than in the past few years.
With any luck, our industry will continue to thrive as markets recover and we can concentrate more on doing what we do best – providing high-quality advice to clients.