The normally sober-sided Washington-based regulator (that’s DC not Tyne & Wear, by the way) has rather surprised everyone, if a leaked official document is to be believed. The IMF has come up with a two-pronged tax scheme, under which banks would have to pay not only a flat-rate banking levy but also a further variable-rate charge on their profits and bonuses.
Of course there are no details as yet, but the general idea is that the revenue thus generated would be set aside to help pay for the consequences of the next self-induced global financial disaster. The proposals will be discussed by the G20 group of finance ministers at a meeting this weekend, which promises to be a lively affair given that no-one was really expecting anything half so hard-hitting from IMF chief Dominique Strauss-Kahn and his band of merry men.
Their decidedly Robin Hood plan is likely to be about as popular with the banks themselves as Mr Loxley was with the Sherriff of Nottingham – the idea that anything should get in the way of their divinely-asserted right to rake in the cash being terminally distasteful to the denizens of Walls Street and the Square Mile.
But neither politicians nor the public mood has much sympathy to spare for bankers just now, and since the financial industry as a whole has done such a shockingly bad job of justifying itself to wider society, things could well be about go very badly for the former masters of the universe.
And the IMF’s plan would have a couple of clear social benefits. Firstly, the banks would have to pay to sort out their own mess in future, rather than rely on mugging the taxpayer when things go belly up. And secondly – really a corollary of the first point – that the presentiment of being held to account might curb some of the reckless, even criminal, behaviour that got us into the mess in a first place.
On the downside, taxing the banks would also mean that we would all have to get used to a rather less free-wheeling and enterprising financial sector. So credit for both businesses and individuals would probably end up being harder to come by and more expensive.
There’s also the competitiveness issue, perhaps the biggest stumbling block to those who would seek financial reform. Unless these taxes are introduced simultaneously in every major global financial centre, the banks will simply move.
In fact even in the amazingly unlikely event that such international co-ordination could be achieved, the big banks would probably find themselves a deserted coral atoll somewhere, install a server and a few satellite dishes and go to work from there. That would be very bad news for countries like the UK, whose economies are now heavily dependent on financial services.
So the IMF plans are interesting and sound in theory, but very hard to achieve in practice. It will be instructive to see what conclusions the G20 comes to this weekend.
Whatever they decide, here at MT we reckon that Gordon Brown will soon pop up, trying to claim the credit. There's an election on after all...
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