Taxing banks: the best solutions

Bank building28 October 2011

In the aftermath of the financial market collapse, the G20 countries asked how the financial sector "could make a fair and substantial contribution towards paying for the financial burden" from government interventions to bail out the banks.

Ten EU countries, including the UK, have now introduced some sort of bank taxing. The question is what bank taxes ultimately are meant to achieve. Is it to:

  • raise revenue
  • build up funds as an insurance against equity problems in the future
  • make banks repay the damage they have done to the public purse
  • an “insurance premium” for risk-taking
  • encourage behaviour change in the banking sector?

The aims of the current bank levies are twofold - both increasing revenue and meeting regulatory reforms. The taxes make banks:

  • pay a contribution reflecting the risk they pose
  • ensure they have sufficient equity to absorb losses
  • fund measures for an improved financial regime.

The recent conference Taxing Banks: the role of tax in post-crisis bank regulation, hosted by the Oxford University Centre for Business Taxation and the ESRC, examined these challenging issues. Representatives from the International Monetary Fund, the Bank of England, the Financial Services Authority, the British Bankers’ Association and academic experts presented their views on bank taxing. Presentations from the conference are available online as downloads.