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FSA threatens to tax the bejeezus out of banks

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The head of the Financial Services Authority, Lord Turner, seems to be taking a harder line with the banking industry, and we’re loving his newfound bad-assery. Turner’s bank-slapping comments were published as part of a rountable discussion on stabilising the global finance industry, which you can read at Prospect Magazine’s website (subscription required).

In the article, Turner says that the global financial regulatory system needs a ‘very major reconstruction’ to prevent a reoccurrence of the recent turmoil – to dust off an old chestnut: well duh! But he goes on to say that the banking sector has become too big, describing some parts of the industry as ‘socially useless’. We imagine he’s referring to the parts which manage to conjure vast profits out of thin air using dubious financial chicanery without actually providing society with any sort of useful product or service in the process, but you can draw your own conclusions.

In order to prevent banks from getting too big, and salaries from growing too large, Turner claims to be considering a tax on the banks’ transactions. The main tool the FSA plans to use to reign in the banking sector is increased capital requirements – that means that they will be required to hold much larger cash reserves in order to be able to engage in the kind of risky, highly leveraged trading activities that led to the current crisis.

But he says that if this alone doesn’t work, the FSA could restrict the profits available to banks by placing a tax on their transactions, making it more costly for them to do business if they grow too large.

This is all well and good, but the suggestion seems to have been met with universal condemnation from politicians of all parties. Alistair Darling, Nick Clegg and Boris Johnson have all voiced their disapproval.

The banks, naturally, are screaming foul – with a spokesman for one bank saying “Should this stupid idea ever be taken to heart or see the light of day by any government now or in the future then it really would be time to turn out the lights in the UK.”

This really needs to stop – as soon as anybody suggests anything which might bring the banks under control, everybody in power starts bleating about the damage it could cause. What could possibly be more damaging than the massively destructive situation already created by banks which were allowed to become too big to fail? We tried it their way, and they screwed up beyond measure – now it’s time to try something different.

Sadly, however, we’re not convinced that Turner’s ideas will ever be allowed to happen, because even after everything that’s happened, most of our politicians are still wildly and blindly in love with the city-boys.

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