European Bank Levies – Not Yet in My Backyard!

With the Euro burning out of control trust EU internal market commissioner Michel Barnier to fan the flames of market fear placing European banks under even more pressure. Indeed, as if banks had not suffered more than enough during the past few weeks primarily due to the manner in which Commissioner Barnier’s EU colleagues together with the seemingly hapless Eurozone authorities mishandled issues of Greek sovereign debt plus the potential for default and contagion.

Relentless in efforts to blame everything on banks including it seems also the lack of financial stability and probably government deficits and the contagion effects of sovereign debt crisis as well M. Barnier has now decided in his wisdom that today is the day to give yet another big push for EU wide regulation that banks should pay an insurance type levy aimed at ensuring taxpayers are never again left to foot the bill of bank failures. It is not so much that in due course imposing something along the lines of an insurance levy on banks might not be a good idea that we take issue with. Neither is it that imposing such a levy might just provide scope for banks to increase risk should they happen to believe that they are potentially ring fenced against disaster – the so called moral hazard idea that I frankly doubt would ever occur. Again neither is this rant aimed at our concern that if some countries opted out or that Europe and maybe the US impose levies while Asia does not or that suddenly more bank head offices and staff fly off to eastern pastures new that worries us either – realistic though all these concerns probably are. What really sticks in the craw though is the timing of M. Barnier’s remarks on the very day that US Treasury Secretary Tim Geithner met with UK Chancellor of Exchequer George Osborne for the first time in London to discuss, amongst other things, global financial reform.

Clearly as last weeks Senate win for President Obama’s Wall Street reform legislation showed the US is way ahead of European curve in the race for regulatory reform. Meanwhile as EU leaders and others cry out for ‘global’ regulatory reform so long of course that it is based on the planned EU model fewer it seems are prepared to listen. With very many other things on the mind even the UK which has previously that it wants to see regulatory reform of banks has it seems stepped back from pushing the issue of bank regulation forward as a priority. There is a time and place for everything and now is certainly not that time. With ‘Rome’ burning the multi faceted EU should be concentrating on one thing alone – a disciplined approach to government deficit removal and getting the EU economy moving rather than more misplaced regulation that will provide only benefit for Europe’s many competitors. New regulation will come of course – it is as inevitable as night following day and it is right that we accept the need that regulation should be strengthened. But we don’t need more of it yet. Indeed, here in the UK what we want is UK regulation based on UK needs and the requirements of its market players. Undoubtedly banks will play ball when governments or the EU impose insurance type levies and they will do it with a good heart. But just like the UK coalition government is now doing the EU should first learn to get its priorities right.