FSA chief calls for bank 'tax on size'
Updated on 03 September 2009
The danger of bank failure could be lessened if a "tax on size" was imposed on larger banks, according to Financial Services Authority Chairman Lord Turner.
Speaking to Channel 4 News, Lord Adair Turner said: "It is still probably the case that if the very largest banks failed in a situation where there were several at risk rather than just one, that you might still have to rescue them, and so there is still a fundamental problem of 'too big to fail'."
Lord Turner went on: "What that means is that alongside these measures to work out wind-down plans, make it easier to imagine that we could wind down a very big bank, we also have to make sure that the very biggest banks have a very, very low possibility of failure.
"In a sense, what one is almost setting up is almost a tax on size, and so the issue which is being debated is that the very biggest banks will have to hold an even higher level of capital than the average banks across the world.
"If despite that tax on size, despite that high level of capital, they can still justify being very large, then that's fine. But if, faced with that, some of them choose to stay a bit smaller, that is fine as well."
Lord Turner’s proposals come on the day the prime minister has written to the French and German leaders insisting that Europe's governments must continue to pour money into the economy to guarantee a sustained international recovery.
On the eve of this weekend's London summit of EU finance ministers, Mr Brown has told Nicolas Sarkozy and Angela Merkel that "the crisis is not over" and that a "strong joint message" from EU leaders is a "crucial prerequisite" to success at this month's G20 summit in Pittsburgh.
His message comes as the world economic watchdog, the OECD, has forecast an even-deeper decline for the British economy, in contrast to an earlier than expected return to recovery in other countries.
Meanwile, as G20 finance ministers prepare to gather in London tomorrow, Mr Darling told the Independent newspaper: "It is a bit early to say, 'How do we get out of this?'
"You must have a plan that allows you to exit in a way that is consistent with allowing the economy to grow again.
"Don't for goodness' sake get out of them before you have completed the job."
Mr Darling said: "There are encouraging signs that the joint action we have taken in the last 10 months or so is having an effect.
"We are beginning to see the fruits of that action. But it is too early yet [to abandon it]. We must not get ahead of ourselves."
French president Nicolas Sarkozy is leading calls for placing limits on banks, but Mr Darling said his plans would affect mainly US and UK big banks rather than smaller continental ones.
"The French would appear to restrict this [new] regime to a certain class of banks - large complex ones," he said.
"I believe this policy should be good for all banks. What is good for one is good for the lot."
Economics correspondent Faisal Islam said: "In the aftermath of the Lehman calamity it was a sensible piece of global financial solidarity, designed to inject much-needed confidence.
"One year on, with the most tangible effect of this promise is that we are not in a second great depression. The second most tangible effect is that some of those same banks are coining in huge profits at almost no risk."
