G20 bank levy: Where have all the taxers gone? Only a few weeks ago, governments seemed to compete to find the best type of global tax to make banks pay for past sins and future problems. Now it looks like the idea will be quietly shelved at the June 26-27 G20 meeting in Toronto. With sovereign debt problems threatening European banks, another tax burden hardly looks like a pressing need.
The proposal has been politically popular ever since western governments had to support or rescue their banking systems back in 2008. An "insurance premium" against bailouts sounded sensible, both morally and financially. The idea recently received the support of the International Monetary Fund. US president Barack Obama said he wants some of his "money back" and only last week the European Commission introduced plans for a pan-European bank levy.
But, suddenly the idea doesn't sound so hot after all. Host nation Canada doesn't want to hear about it — the Bay Street banks are just fine, thanks. The main reason is that tax-hungry governments such as France or Germany have lost the fervour for punishing their banks at the very same time they're trying to avoid a regional sovereign debt meltdown.
Traders and other bank employees may be prospering, but the banks themselves have a lot to deal with. Bad loans are rising, another round of losses is coming and the ECB has agreed to buy battered sovereign bonds to relieve banks' balance sheets. Governments naturally want banks to keep lending to the economy, so new taxes have been pushed to the back burner.
The current lack of enthusiasm for the tax may simply kill it for good. This wouldn't be a great loss if governments then focused on regulatory reforms, particularly on finding tools better suited to force banks into proper behaviour. The new capital requirements currently under discussion in the Basel committee could be promising. In the meantime, keeping growth alive is a more pressing concern than punishing the baddies.