Will a global bank levy mean more alms for the rich?

A 2007 report for an all-party committee of MPs, produced by campaign group Stamp Out Poverty, estimated that a 0.005% tax imposed solely on sterling currency transactions would raise $5bn a year, which it wanted to be used for poverty relief. In the US, the Economic Policy Institute says that a 0.5% levy imposed on a much wider range of assets could raise as much $226bn a year.

Jessop acknowledges the criticisms that the FTT would be difficult to collect and police, but says they are overdone. “If there is a will and if the US signs up, it will happen,” he says. At the recent World Economic Forum meetings in Davos, however, support seemed to shift towards using the Obama proposal as the basis for a permanent and global levy on major banks.

Damage limitation
The banks have complained, but after a while ­ probably seeing the impact-minimising value in getting on board early ­ many seem ready to sign up to a “resolution fund” that could help pay for future rescues. Speaking in Davos, Josef Ackermann, chief executive of Deutsche Bank, advocated a European rescue and resolution fund, adding, “Of course, the capital for this fund would have to come from banks to a large degree.”

Jessop believes the banks may be favouring the levy because, behind closed doors, it would do “nothing to curb excessive risk taking and might even encourage it.”

At the Pittsburgh Summit, the leaders of the G20 instructed the International Monetary Fund to examine the feasibility of both the resolution fund and the FTT and to report back at the IMF’s meetings in April.

Stephen Lewis, chief economist at Monument Securities, says part of the problem lies with the G20’s inability to deliver a consensus on the path for regulatory reform. Indeed, there is another transatlantic divide ­ this time over how to prevent banks from returning to ‘business as usual’ and embarking on risky, speculative dealings.

President Obama has proposed preventing banks becoming too big to fail (which even has its own acronym ­ TBTF) by banning them from proprietary trading, speculating with their own money and owning hedge or private equity funds. That is a sweeping change.

The UK, on the other hand, has consistently rejected the TBTF thesis, preferring to focus on raising banks’ capital requirements, reducing their leverage and tightening regulation.

“Since Pittsburgh, the coordinated global approach to regulatory reform has broken down,” says Lewis, warning that the issue could drag on to the next G20 Summits in Toronto in June and Seoul in November.

The problem, he says, is that there is no consensus among the G20 about what should be done on bank taxation.

“Against that policy background, it seems the banks will be operating in an uncertain tax environment for a while to come,” he says.

Uncertainty over the next stage of financial regulation will keep banks reluctant to increase lending to customers, which in turn could derail the economic recovery. Given the state of the political opinion polls on both sides of the Atlantic, that would be bad news for Brown and Obama ­ in any language.