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Business

FSA chief in favour of tax on 'socially useless' banks

Text by NEWS WIRES

Latest update : 2009-08-27

Lord Turner, the head of the Financial Services Authority, has said he is in favour of a tax on banks' financial transactions - in other words, a 'Tobin tax' - as way of reducing the amount of money they have available for bonuses.

AFP - The head of Britain's financial watchdog said in comments published Wednesday that if needed he would back a multi-billion pound tax on banks as a measure to curb large bonuses for banking executives.

Adair Turner, chairman of the Financial Services Authority, said he would support taxes on the financial sector in a bid to prevent such bonuses for executives if they continued with excessive risk-taking.

Excessive risk-taking has been blamed for helping spark the global financial crisis and prompted a multi-billion pound taxpayer bailout of the British banking sector.

Lord Turner also Wednesday criticised some activities of London's financial sector as "socially useless" and questioned whether it has grown too large.

"If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," Turner said in an interview with current affairs magazine Prospect.

"Higher capital requirements against trading activities will be our most powerful tool to eliminate excessive activity and profits.

"And if increased capital requirements are insufficient I am happy to consider taxes on financial transactions - Tobin taxes."

A Tobin tax is a small tax on foreign exchange transactions, originally proposed by American economist James Tobin in the 1970s to discourage speculative trading.

Turner said a tax on the millions of transactions in the sector would cut banks' profits and reduce the pool of money available for bonuses.

He said the level of pay in the sector may be caused by "over-simplistic financial deregulation", describing this as the "really fundamental question".

"This is not a question that any of the politicians have focused on but I think it's an important and legitimate issue of public concern," he said.

Turner's comments were published Thursday on the front pages of several British newspapers. Aides to Britain's finance minister Alistair Darling told the Financial Times that such taxes were not under consideration.

The Guardian newspaper said such plans were recently put forward by anti-poverty campaigners, with tax revenue channelled to helping support developing nations.

The comments come after the FSA earlier this month outlined new rules on bonuses for banking executives, unveiling a new code of practice that will come into effect from 2010.

Analysts argue that large bonuses -- particularly in Europe and the United States -- damaged the ability of leading bank executives to take well-judged business risks in the run-up to the meltdown.

President Nicolas Sarkozy said Wednesday he would call for limits on bonuses as he takes his campaign for greater regulation of the global finance industry to next month's G20 summit.

Date created : 2009-08-27

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