Bank of England’s Paul Tucker says banks should be taxed to pay for bail-outs
The Bank of England's deputy Governor has raised the prospect of imposing an effective tax on Britain's banks to help shoulder the cost of the financial bail-outs.
By Edmund Conway, Economics Editor
Telegraph, 28 May 2009
In a speech which send shivers of concern down bank shareholders' spines, Paul Tucker raised the idea that in the future the Government should be able to "claim back the eventual cost" of a capital injection into stricken banks after the financial crisis is finished. The comments, made in a speech in Tokyo, come amid growing disquiet on both sides of the Atlantic that normal taxpayers are having to bear the burden of a financial collapse which was not their responsibility.
In his first major speech since his promotion to deputy Governor responsible for financial stability, Mr Tucker, one of the most highly-regarded figures in the UK central bank, said governments should consider forcing banks to set up "insurance" schemes to cover the cost of possible future bail-outs.
Governments currently have schemes designed to ensure that depositors have a certain amount of their cash refunded if their bank collapses.
Mr Tucker added: "If the authorities determined that a public equity injection was necessary in order to preserve stability, government could be authorised to provide the support, but with a right to claim back the eventual cost, if any, from an increased 'insurance' levy on the banking system over a period of years beginning after the crisis had clearly passed. Under that kind of regime, more of the cost of banking system failures could fall on the shareholders of banks generally rather than on the public purse."
Although he said the reforms would need to take place "over the medium term", he later indicated that such a regime might conceivably be imposed to mop up after the current crisis, saying that unlike deposit insurance schemes, this system may not need to be pre-funded.
In the wide-ranging speech, Mr Tucker also warned that authorities were still grappling with the question of how to cope with the collapse of an international investment bank, such as Lehman Brothers. He said that in the future it might make sense for these banks to have their own "credible resolution plans... with higher regulatory capital and liquidity charges entailed if they do not."