Earth to banks: Where will you go if we tax you?


5:18 pm - February 16th 2012

by Owen Tudor    


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Every time anyone suggests that the finance sector do something to pay back the trillions of taxpayers’ money used to bail them out, they insist that such demands are unrealistic because they will simply up sticks and move elsewhere.

There are many reasons why this is a gamblers’ bluff that should be called (even the Financial Times has said so), but, increasingly, the main reason is going to be that governments are beginning to circle the wagons around the finance sector, and it won’t have anywhere to go.

This may be the beginning of the end to the regulatory and fiscal arbitrage that the finance sector has been practicing (and – in full on blackmail mode – threatening to practice) for years, picking off government after government and demanding a lax environment everywhere in which to make their bloated profits and bonuses.

This week, France’s President Sarkozy pressed ahead with an admittedly rather minimalist unilateral financial transactions tax. His Government was one of nine that called on the Danish G0vernment, the current holders of the EU Presidency, to press ahead with a European FTT.

In both cases, the finance sector has claimed that the measures will drive them abroad (like that was a bad thing, given how much damage they’ve done to their host economies, but let that pass!) But where will they go?

Because now the US President has unveiled what is likely to be his election campaign budget – and it contains a new $61bn tax on financial institutions over the next decade, in an effort to recover the costs of the financial bailout.

Unions in the US are backing politicians who are starting to get tough with the finance industry, although there is a long way to go.

AFLCIO President Rich Trumka says the Obama budget proposal “puts us on the right path towards building a solid foundation for our economic future.”

And it would be far more effective if the world’s leaders (who aren’t quite acting together yet – the British Government continues to act like the finance sector’s lapdog) could act together through bodies like the G20.

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About the author
Owen Tudor is an occasional contributor to LC. He is head of the TUC’s European Union and International Relations Department and blogs more regularly at the Touchstone blog.
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Reader comments


1. Not an economist

“In both cases, the finance sector has claimed that the measures will drive them abroad (like that was a bad thing, given how much damage they’ve done to their host economies, but let that pass!)”

Yeah. OK, look, next time you need a mortgage, or if you need some start-up capital, or you’ve fallen on hard times, or you need something to support your family which you can’t afford to pay for up front, or you fancy tucking some cash away in investments…

Because now the US President has unveiled what is likely to be his election campaign budget – and it contains a new $61bn tax on financial institutions over the next decade, in an effort to recover the costs of the financial bailout.

Wasn’t this announced 2 years ago? Except that it was $110bn back then. Not entirely new is it?
http://news.bbc.co.uk/1/hi/8458689.stm

I have painted a few brick walls in my life but before you Owen I never got to talk to one, where will they go? Who gives a dam, for the tenth thousand time focus on the transactions that have no choice when it comes to relocation.

“The introduction of transaction taxes can become expensive for the insurances. Using a simple transaction cost model, we can compute that a hedging strategy which cost 2.0% p.a. now will cost about 2.2% p.a. after the introduction of 0.1% transaction tax. This is a raise of 10% in insurance fees.

These results are in line with DWS who computed that a so called Riester-Rente – a German annuity contract – where the customer pays 100 € per months over 40 years would lose about 10%. That means at maturity of the contract the customer receives 135,000€ instead of 149,000€. Another similar result is given in my study about Constant Proportional Portfolio Insurance (CPPI) under Financial Transaction Tax, which shows that the upside potential of the customer is hit dramatically – up to 50%”

The damage to pension, insurance, all interest rates, daily business is Massive when taken all at once, yet you continue to fixate on what amounts to a fly on a cows back without giving a dam what your ideas will do to the population as a whole.

In Thursday’s news:

LONDON, Feb 16 (Reuters) – Britain’s banking industry, dominated by four big players, may need another investigation by the country’s anti-trust regulator due to lack of progress in opening up the sector to competition, Britain’s main consumer watchdog said on Thursday.
http://www.reuters.com/article/2012/02/16/britain-banks-idUSL5E8DG3T320120216

5. gastro george

@3

I find it kind of ironic that the rentier class start getting all concerned about an FTT skimming our pensions, etc. when they’re spending quite a lot of their energies doing the same thing themselves.

Trillions of bailouts? The cost of the bailouts in the UK is just over 10bn at the moment.

I assume Owen Tudor also ignores the billions the finance industry pays in tax, directly or through tax on its employees. Which amounts to billions EVERY YEAR.

He also once again is totally oblivious to the fact that banks can move a lot of their transactions offshore with little or no trouble.

Yet most importantly, he totally ignores the evidence which has been repeatedly shown to him, that the tax will be paid by the customers of banks, that it will increase dramatically the cost of finance (and thus raise effective interest rates) and it will reduce growth.

Honestly, when central banks are lowering interest rates around the world and engaging in QE, he wants us to pursue a policy which will raise effective interest rates and cost end users more – which will only damage demand, investment and consumption.

“I find it kind of ironic that the rentier class start getting all concerned about an FTT skimming our pensions, etc. when they’re spending quite a lot of their energies doing the same thing themselves.”

That is what when who why exactly, to do with this? Perhaps the “rentier class” may have a pension them selves, or being of there position have a degree of business acumen and understand that the proprietary trading of banks is but a fraction of the transactions such a tax will have an impact on ( earth to reader they will be offshore so fast if you happen to see it you will become dizzy) and the majority of transactions covered are vital for and service to the general public.

8. gastro george

“That is what when who why exactly, to do with this?”

I refer your honour to the ongoing concern with the high and opaque charges levied by finance industry funds.

“… the majority of transactions covered are vital for and service to the general public.”

And yet humanity managed to survive prior to the last 30 years …

@OP, Owen Tudor: “Every time anyone suggests that the finance sector do something to pay back the trillions of taxpayers’ money used to bail them out…”

I gave up reading at the first clause of the first sentence.

Government did not give money to banks. Government now owns failed banks who have to raise money to buy out government shareholding to regain independence. If we want our money back, we need to be patient. Government should sell the shares that it owns when we get our investment plus interest back.

Government guarantees to deposit holders are close to a bail out of banks. But do you really wish to defecate on rainy day savers?

Quantitative Easing is not a bank bail out mechanism. It is a money management mechanism partially delivered by banks. QE will not prop up failing banks; any effects are incidental.

10. Charlotte Gore

Banks are already taxed.

Although, before anyone gets too worked up, the Obama bank levy proposal is pretty similar to the UK bank levy that’s already in effect.

“Because now the US President has unveiled what is likely to be his election campaign budget – and it contains a new $61bn tax on financial institutions over the next decade, in an effort to recover the costs of the financial bailout.”

As Tim J points out, we already have exactly this tax in the UK. It’s called the banking levy and a throughly good tax it is too.

The largest banks are, in the phrase, too big to fail. The markets know that they’ll be rescued if they fall over. They thus have an implicit subsidy from the government.

And such implicit subsidies should be made explicit and paid for.

So, banks which have liabilities (ie, they’ve borrowed money from someone else) which are not covered under other deposit insurance schemes (like the one for personal deposits up to whatever it is, 80k or something) must now pay an insurance levy on that implicit guarantee that they’re getting.

This is good.

It’s fine to argue that they shouldn’t have that guarantee, that we shouldn’t have FRB in the first place. But given that we do, to both, making the banks pay is a great idea.

But out Mr. Tudor, the TUC’s banking expert, really does seem to be missing the point that it’s such a good idea that we already do it.

And no, really, an insurance levy on deposit guarantees is not the same as a tax on financial transactions. The former is a good idea, the latter a barking mad one.

“There are many reasons why this is a gamblers’ bluff that should be called”

Not least that it’s not just a gamblers’ bluff – it’s an excuse, one which politicians seeking support from the financial sector (like Boris) tend to be far keener on using than the financial sector itself.

14. Chaise Guevara

I have yet to hear a satisfactory explanation for the idea that banks will “move”, like they only ever exist in one country.

Most banks are multinational. You don’t suddenly move out of the UK because Angola (wherever) starts looking like a slightly better place to do business. You keep your UK outlets and open new ones in Angola. These are companies that chase *growth*.

Of course, that doesn’t mean you can ramp up tax and so on with no implications. If it gets to extreme levels, and making a profit in the country starts to look impossible, banks might move out. More realistically, creating a notable more onorous business enivronment will cause more loss-making outlets to close/consolidate and fewer new outlets to be opened, as the firms will be focusing resources on higher-growth markets.

But that doesn’t seem to be the argument being advanced. We seem to be being told that banks will leave the UK as soon as another country offers a slightly better environment, which is nonsense.

“I have yet to hear a satisfactory explanation for the idea that banks will “move”, like they only ever exist in one country.”

“The banks will leave” is being used as a smoke screen, as though if we can get assurances of the banks being trapped by the legislation with no way out then hey every thing is just fine.

Sementa has said ” what bank will leave Europe and lose its client base? ” ~ The answer is non, they can still service there European client base. If a bank or institution is not making a transaction for there own accounts they are making transactions as service to the public. There proprietary trading Operations will move offshore, leaving only the transactions that are done on behalf of the public and business, these will not cost the banks a penny as the complete cost of the transaction tax will be transfered to the customer.

With no exemptions for market makers and clearing houses you buy a share from a broker, who buys that share from a clearing member, who buys it from the central clearing party, who’s bought from the clearing member who’s bought from the broker who’s bought from the individual who sold you the stock in the first place, the financial transaction tax will apply to each of these transactions and the individual who purchased the share will pay them all.

This is what you guys call “making the banks pay” eh?

We seem to be being told that banks will leave the UK as soon as another country offers a slightly better environment, which is nonsense.

This is largely because everyone uses “bankers” when they mean “the financial sector”. Barclays won’t ‘move’ out of the UK, although it (or more likely HSBC) might move its head office, and it may decide to focus on growth outside the UK, so that fewer new jobs are added here. Alternatively, individual investment bankers or teams of bankers (at Goldmans, say or Barcap) can move either to other branches of the same bank or another bank in Switzerland, or Singapore, or Hong Kong.

The sector that really can up sticks and move out whenever it wants is the hedge fund sector. Very little fixed capital and a highly mobile, transferrably-skilled workforce.

The objection you often hear is that people can’t just move like that – they have ties to the UK. Well, a hefty proportion aren’t British in the first place – they weren’t born here and they don’t intend to die here. London’s not a home, it’s an office, and it’s a lot easier to move offices.

17. Luis Enrique

Obviously the location of the banking industry can change over time, but it’s probably true that large movements in response to tax regimes are unlikely short term. However w.r.t FTT I don’t think anybody is suggesting Soc Gen is going to leave France, merely that it will route certain transactions through its London office, or Hong Kong, etc.

@ Chaise + Jungle

Let me give you a real world example.

South African interest rates are traded in London and Joburg, roughly split 50/50. (I’ve worked in this market for 10 years, in both centres).

If an EU wide FTT was brought in, all the London banks would move their operations to joburg – most banks already have rep offices in joburg and a couple are opening up small offices partly with this eventuality in mind.

The bank itself might not move but certain bits of it, and its staff, will. So less jobs and less tax paid in London.

Then of course, the support industries will have to move. The brokers firstly, followed swiftly by the IT and support staff. So more jobs and more tax revenues lost.

Some of the customers – pension and hedge funds, will also move – indeed some have already got offices in Switzerland.

Its pretty easy and low cost to do such moves, and they would take almost no time at all to complete – all you need is some desk space and some phone lines, and a powerful computer. It’s not as if the infrastructure isn’t already in place – it very much is.

Now take the above and multiply it through by every offshore market traded in London (all of them) and then think of the jobs and tax that would be lost to the UK, given something like 40% of all trading globally happens in the city.

It is easier for banks to concentrate all their market based activities in a couple of centres, and for sure there would be costs associated with distributing them or moving them globally, but those costs are quite small given the infrastrucutre needed to support trading exists in many palces already, the workforce is highly mobile and most importantly staying in place would mean lower revenues AND a massive loss in competativeness in what are already highly competative markets.

19. Chaise Guevara

@ 14 x

You make a much better argument than the “the banks will abandon us!” guys.

@ 15 TImJ and 16 Luis

Agreed. I’d just prefer that the people making that argument would actually, you know, MAKE THAT ARGUMENT rather than telling irrational horror stories.

20. Chaise Guevara

@ 17

Cheers, Tyler.

Oh they’ll stay: they like the UK and London. Luxury living, social reasons, entertainment, culture.

22. Frances_coppola

Oh, right. So if the G20 leaders got together and imposed punitive taxation worldwide on the financial sector, we’d all be happy to pay higher interest rates on our mortgages and receive EVEN lower returns on our pensions, would we? Because that’s what would happen.

@ 20 rentergirl

Wouldn’t be so sure if I were you. London has some things going for it, but it is also incredibly expensive, overcrowded and commuting is a nightmare. Add in high taxes and frothing lefties blaming everyone who works in finance for all the world’s ills and it suddenly isn’t necessarily the most amazing place in the world.

I and quite a few of the people I know in the industry have left by choice, and there are plenty of places to go.

In Joburg where I am, living is a lot cheaper, I work less hard, the weather is a lot better and my commute is short and easy. Not to mention that a massive house here in the equivalent of Chelsea only sets you back about 200k…which gets you very little in Chelsea itself. Whislt there may not be as much to do culturally, the Kruger park is only a few hours drive away and I’m taking the other half to phantom of the opera next week.

Or how about Geneva, a very multicultural place with plenty of culture, but close to the mountains so you can go skiing or mountainbiking every weekend, or sailing on the lake etc.

There really are some very nice places in the world where people like me can do our jobs, be paid well for it and live as well if not better than in London – the only thing I miss are my friends who are still there.

In Joburg where I am, living is a lot cheaper, I work less hard, the weather is a lot better and my commute is short and easy.

Yeah, but Jo’burg’s horrible! And the afternoon thunderstorms get really annoying really quickly – though they ought to be fading by this time of year.

They’ll go mainly to Switzerland, Singapore and Hong Kong.

@ TimJ

Quite a fan of Joburg myself – and I hate singapore and hong kong, but the point is that whatever peoples tastes, there are other places that cater for them as well if not, dare I say it, better than london.

So lefties hand-wavingly saying that bankers will never dare move because London is so wonderful is tosh.

21. Frances Coppola

Ludicrous scaremongering.

Besides, perhaps we don’t want to live with the massive risk of systemic financial failure any longer.

24 Tyler

Of the 18,438 house robberies in South Africa last year, 8,122 were in the province of Gauteng, which includes Johannesburg.

http://news.bbc.co.uk/1/hi/8668615.stm

24 – it’s nicer than Pretoria, and that’s as far as I’ll go.

“Ludicrous scaremongering”

Why? Because you put your fingers in your ears, sing and pretend thats the case?

“Besides, perhaps we don’t want to live with the massive risk of systemic financial failure any longer.”

Ah right, please give us your analysis as to how an FTT removes that risk? Dont embarrass your self and say high frequency traders will make thirty traders per second instead of one hundred.

Also how would have an FTT averted the sovereign debt and mortgage backed securities crisis, the two biggest problems of recent times?

30. Frances_coppola

Moving business to other jurisdictions is not necessarily quick, cheap or easy, as some people here seem to think. In 1996 I worked on a project at SBC Warburg to repatriate trading books from Hong Kong to London. Top brass thought we could just wave a wand and start trading from London: they set a generous three months for the transfer and expected us to deliver it well within that timeframe and for not much money. They were totally bemused to discover that the scale of changes required to IT and human systems made it impossible to deliver the transfer in that timeframe or at low cost. It actually took 9 months (and would have taken much longer if people hadn’t been prepared to work silly hours and weekends for months on end) and cost an AWFUL lot of money.

That’s not to say that some banks wouldn’t move. Standard Chartered and HSBC may well do so – but then they have less reason to stay really. But don’t underestimate the costs and upheaval that would be involved.

31. Frances_coppola

@25 BenM

“Ludicrous scaremongering”? I don’t think so. Ben, I think you need to learn about tax incidence. If you tax a corporation more highly, as you propose, it passes the increased cost arising from that tax on to its customers, its shareholders, and its workers. Customers experience higher prices – hence higher mortgage rates. Shareholders experience lower dividends, which will result in lower pension returns since bank shares are among those that pension funds invest in. Workers experience lower pay rises – and if you think that all bank workers earn megabucks you REALLY don’t understand the situation. The majority of bank employees (and there are thousands of them) earn average or less than average incomes, even in London. Bank clerks in London earn £15-17K. Even bank branch managers are only on upper middle earnings, £25-40K.

And tell me, exactly how would taxing banks prevent systemic failure?

Go, then to Geneva and we’ll soldier on without you. You still aren’t taxed enough and still haven’t made amends for ruining the economy. You will go skiing in Geneva while people with 6 months to live are working for a pittance ie their benefits. But you still feel aggrieved, don’t you?

@ 27 BenM

8000 robberies in a city of over a million…and the typical british/BBC totally uninformed claptrap about South Africa. But are you *seriously* trying to say that Bankers won’t move by arguing one city is better than another?

@ 26 BenM

An FTT will raise interest rates. Fact. And not just by the amount of the FTT, which would be insignificant for a homebuyer.

Why? Because when you borrow from a bank, they don’t have the money sitting there – they have to borroew it in money markets in short term lending. So for a say W0y loan a bank if its lucky has to go and borrow the money to cover the debt every R months. So a minimum of 40 times…wiith the FTT charged on each one.

An FTT will also make hedging more expensive, and holding debt more expensive so government bonds will likely sell off a bit, so rates will be forced higher. Depending on the size of an FTT it will push mortgage rates a couple of % higher at best.

And please do tell me, when did trading or high frequency trading cause the financial crisis? CDOs don’t trade usually – they are illiquid – and mortgages are on the commercial banking side, not investment banking.

@ Frances Coppola

Its become a lot easier since 1996 to move books around. I’ve seen a couple of big name banks do it in under a week. Settlement infrastructure has also globalised, so that is no longer a problem either. In my example, I only know 2 major players in the market who haven’t got offices down here now, and 3 large banks have opened offices of varying size in the last year here. More so, a lot of banks have capitised their local office (JP, Deutsche, Citit, stanchart etc) so they can trade in either name, minimising any risk of interruption during an FTT enforced move. For these guys it really is as simple as pushing a button.

@32 rentergirl

Well done for totally missing the point. First you say bankers won’t move because london is so wonderful, then when I show bankers can and will, you say you don’t care. Graze your knee in the playground did we?

Then you start frothing. Not pay enough tax? The tax burden already falls mostly on the top 10% of taxpayers. What do you think would happen to your precious, bloated welfare state if all the banks upped and left, taking about 8% of GDP ans 17% of tax revenues with them? I somehow doubt you’d soldier on.

I wonder if you’ve noticed that the banking crisis was 2008….this crisis is a soverign debt crisis because governments have got in to way too much debt propping up their ever-grasping welfare states. It’s rare to hear anyone on the left question if we can afford an ever-increasing welfare bill or and ever-expanding state. What you do hear is lefties and unions always calling for more benefits and more pay, yet for no more work or productivity. Indeed, it’s always “the rich” who are asked to pay for it.

Honestly, it was quite ridiculous reading the guardian article yesterdya about HB, when the best examples of people being forced to move they could find were getting 26k, 35k and 41k in HB respectively. Have these people ever lived in the real world?

32. rentergirl:

No honey all that free money the goverment gives you would soon be jeopardized, as usual a silly little activist type, all the hype and sayings yet not a clue what you are talking about. You would have an excuss if you were 16….

Your local branch of Lloyds TSB or Barclays and its clerks aren’t going to move but the big money dealing operations can. Several Hedge Funds have already moved to Switzerland, as have Nat Rothschild, one of Labour’s wealthiest supporters and Neil Kinnock’s son.
Look at recent history – the largest single cause of the rise in the oil price is the decline in UK (but *not* Norwegian) North Sea Oil production since Brown upped the tax charge because he thought it was an easy option; secondly following the change in tax rules on overseas profits a majority of quoted Lloyd’s insurers (who earn most of their profits on overseas business) have redomiciled the holding company so they now pay UK tax only on UK profits. I thought the final straw came when BRiT Insurance, which sponsors the Test series, moved its domicile to The Netherlands!
Gordon Brown’s greed has actually *reduced* the tax revenues from North Sea Oil and Lloyd’s insurance. The same will happen to banking if the tax rate is pushed too high. I am all for banks – and everyone else, including me (did anyone notice Blair and Brown are avoiding £millions of income tax?) – paying their fair share, but Healey and Howe proved that stupidly high nominal rates generate less tax revenue that sensibly high ones. If it cost more to avoid the tax than pay it most people choose to pay up.
Answer to the headline: if *every* country in the world including Luxembourg and the Cayman Islands charged stupid rates of tax on banks, a lot of them would simply quit, leaving the remainder to jack up charges to clients until their net pay was the same for less work.
Correction to fundamental error: there aren’t any trillions of taxpayers’ money used to bail out banks unless you are counting in lira. The *big* losers have been the bank shareholders, while the US government has made $millions of profit out of its TARP programme. There have been a few bail-outs in Europe for government-owned banks in Germany and mutuals in Scotland and Spain, but in the UK the government acquired assets in shareholder-owned banks at a deep discount to NAV.

36. Frances_coppola

@33 Tyler

A lot of the problem arose from the fact that SBC hadn’t integrated Warburg business or systems at the time, so the book move was across legal entities with totally different systems infrastructure. I gave this as an example of a situation where IN-HOUSE IT systems made things much more complicated. External systems architectures are indeed much more global and streamlined these days.

Traders always think you can move books in a week, anyway. They don’t care about back-office systems and procedures, let alone financial control.

@ frances

You’d be surprised how much traders do care about back-office stuff – mostly because when it goes wrong we have an out-trade on our books, normally leading to us getting shat on from on high by managers.

I agree that in the old days when banks didn’t have integrated systems book moves could take forever, but these days banks tend to have much more integrated systems or have developed workarounds – like having books set up in multiple locations already. I know for a fact that DB, JP, Citi, Barclays, HSBC, SocGen and many others to boot have got this kind of set up already. Indeed at a couple of those names the switchover is so easy the book “travels” with the trader, so if a guy in JHB goes to London for meetings or vice versa, his books move with him and he can still trade normally while outside his usual office.

38. Donut Hinge Party

Don’t most of the people threatening to move “Live” in the Cayman Islands, anyway?

Which interestingly is a British Overseas territory, which means that the queen appoints the governor and WE set the taxation rates.

The corporate issue is also a red herring. About 90% of US businesses are registered in Delaware, Washington, even though their presence is often less than a plaque on a door. Does the rest of the country suffer as a result?

Tax the transactions taking place in the country, and you tax the profit at source. What you don’t do is allow them to claim back against previous losses.

And the argument about costs being passed on is just another form of blackmail, which could be applied to any tax or benefit. You could argue that unless you raise JSA to 100 pw then the unemployed will just break into our house and steal all our stuff, thus costing us more in terms of goods and insurance premiums than it would cost to pay the extra. (Assume that 10% less JSA recipients will refrain from committing at least £400 of damage (in terms of actual damage and insurance costs) a week.)

Tax the transactions taking place in the country, and you tax the profit at source.

So the transactions move too. Look up the impact of Sarbanes-Oxley.

40. Donut Hinge Party

So the transactions move too. Look up the impact of Sarbanes-Oxley.

Have done (well, wiki’d it, but I’m not writing a thesis here). Jury’s still out depending on whether you believe Ron Paul or Alan Greenspan. The negatives seem to be conflating correlation with cause, however, and attributing everything from less companies floating to David Haye’s punch up to the Sarbanes-Oxley regulation. A bit like the Coalition blaming Labour for the international banking crisis.

“Smaller international companies were more likely to list in stock exchanges in the U.K. rather than U.S. stock exchanges.” 2008 – a YEAR after the crash.

Brilliant! Where are all these companies, then, and why aren’t our tax receipts skyrocketing?

The corporate issue is also a red herring. About 90% of US businesses are registered in Delaware, Washington, even though their presence is often less than a plaque on a door. Does the rest of the country suffer as a result?

IIRC LibCon’s friend Richard Murphy claims that it does…

And the argument about costs being passed on is just another form of blackmail, …

It’s about trade-offs. People keep saying tax this, tax that, without talking about the consequences. They might be consequences we are satisfied to accept, but people shouldn’t pretend there aren’t any.

Brilliant! Where are all these companies, then, and why aren’t our tax receipts skyrocketing?

Um, listed on the LSE. And UK tax receipts from the financial sector did sky-rocket in the aftermath of Sarb-Ox. It probably had a greater impact on the resurgence of the City of London as a global financial centre than anything the 97-10 Govt did.

@35: “Your local branch of Lloyds TSB or Barclays and its clerks aren’t going to move but the big money dealing operations can. Several Hedge Funds have already moved to Switzerland, as have Nat Rothschild, one of Labour’s wealthiest supporters and Neil Kinnock’s son.”

C’mon. George Osborne has already declared his intention of rebalancing Britain’s economy away from financial services so it’s hardly surprising if some of the hedge funds choose to migrate to Switzerland or wherever tax burdens are lower.

Besides that, it’s highly likely that some outfits in financial services are moving on taking fright at the recent tougher stance taken on insider trading and market manipulation:

“One of the U.K.’s biggest insider-trading investigations continued to reverberate on Friday, as the Financial Services Authority announced fines for two London-based traders who were involved in a share sale by U.S. hedge fund Greenlight Capital Inc. that the regulator has called improper. ” [WSJ 27 January]

“The papers, shown this week to Bloomberg News by court clerks, indicate a bank told the regulator that traders and cash brokers conspired to influence the Yen London interbank offered rate from 2007 to 2010 to profit on interest-rate derivatives linked to the benchmark. Regulators worldwide are investigating whether banks attempted to manipulate the London,Tokyo and euro interbank offered rates, known as Libor, Tibor and Euribor.”
http://www.bloomberg.com/news/2012-02-15/ubs-is-said-to-have-sought-immunity-in-canadian-libor-fixing-investigation.html

The writing is on the wall now with this move by Lloyds to reclaim bonuses from bankers:

“Lloyds Banking Group is taking back bonuses worth £2m from 10 executives, including the former chief executive Eric Daniels, the BBC has learned.” [BBC website, 20 February]

Unsurprising, we hear a lot of wingeing from bankers about how wicked higher taxes are but not a lot about the socialisation of banking losses coupled with the privatisation of banking gains, or insider trading and market manipulation.

@ Bob B
It is hardly surprising that we hear little about the socialisation of banking losses as all UK bank losses have have been borne by their shareholders [Alastair Darling’s chosen appointee to value Northern Rock reported that it had a surplus of £1.63 billion when New Labour expropriated it – and that was after some highly dubious write-downs such as debiting it for the amount the Treasury paid Goldman Sachs to advise it – not Northern Rock – for advice]. The bail-out that used taxpayers money to finance a deficit was for a Building Society in Gordon Brown’s constituency.

“Tax the transactions taking place in the country, and you tax the profit at source”

No you tax the transaction..you do know the difference between a profit and a transaction yes? You would not be the first bobbing hooder that never…

“And the argument about costs being passed on is just another form of blackmail, which could be applied to any tax or benefit”

Stating the out come is “blackmail”?Great! We have the same kind of emotional bitch here that we witnessed in the Euro debates, next we will hear that those against are “insane” and ” has beens”.

@44 John77

Predictably, no comments from you about the insider trading, the market manipulation or the billions being paid out by the high street banks to compensate the victims of the mis-selling of payment protection insurance. Nor about the OFT saying may need another investigation by the country’s anti-trust regulator due to lack of progress in opening up retail banking to competition.

Just the routine bankers’ winge while bankers go screwing the public. No surprise there.

In the FT, Bob Diamond, head of Barclays Bank, was reported as saying in a BBC Today interview on 4 November that the Banks must accept responsibility for what went wrong. In the interview – which I listened to – he repeatedly said that banks must work towards a situation where banks could fail without taxpayer support and without causing systemic instability:
http://www.ft.com/cms/s/0/292c4e48-0658-11e1-8a16-00144feabdc0.html#axzz1cmIopk8y

We are nowhere near that situation yet.

@ 46 Bob B
Since I am not and never have been a banker I am, by definition, incapable of producing a “banker’s whinge”, let alone winge (whatever that may be).
I have always condemned insider trading, but that is not relevant to the article. If I brought up everything irrelevant in every post, the Liberal Conspiracy server would break down.
The bank shareholders are the ones paying out for PPI mis-selling, which seems to have been carried out by junior staff in branches, not the big-money dealers who rarely if ever see a customer, so again irrelevant.
OFT complaining about reduced competition in retail banking after Gordon Brown twisted Lloyds’ arm to buy HBOS and Darling approved Santander’s acquisition of Alliance & Leicester and Bradford & Bingley is likewise irrelevant to the topic – it merely demonstrates how appalling Brown’s disregard of consumer interests actually was.
Yes, for once I agree with Bob Diamond – banks should be able to fail without taxpayer support or creating systemic problems. The first move should be to revert to the pre-New Labour system of deposit guarantees where the small guy was protected but guarantees were limited so large depositors who were capable of checking the soundness of banks would place large deposits where they were confident that the bank was safe. Then dodgy banks wouldn’t grow as fast as sound ones and their failures would not have a domino effect. Still not relevant to the question of big-money dealers relocating out of Paris or London or Frankfurt.
Are you capable of actually dealing with a rational debate or are you limited to ranting about irrelevancies?

John77: “The bank shareholders are the ones paying out for PPI mis-selling, which seems to have been carried out by junior staff in branches, not the big-money dealers who rarely if ever see a customer, so again irrelevant.”

I agree that the mis-selling was done by junior bank staff – while the managers raked in the bonuses for the sales and expected profits.

“OFT complaining about reduced competition in retail banking after Gordon Brown twisted Lloyds’ arm to buy HBOS”

That’s complete nonsense. Lloyds TSB wanted to takeover HBOS so it could have more retail depositors than any other retail bank. I bank with Lloyds – I’ve discussed this with Lloyds staff at the time and since. In autumn 2008, I advised my branch bank manager that buying HBOS wasn’t a good idea – he shook his head.

From GB’s perspective, letting Lloyds sort out HBOS meant that HM Treasury didn’t have another bank to sort out in addition to the headache from coping with RBS, which had been one of the biggest banks in the world, in terms of assets, prior to the crisis. Similarly, Santander’s takeover of Alliance & Leicester. My impression is that Lloyds managers now have many reservations about the wisdom of acquiring HBOS. Btw whatever happened to Lloyds chairman and chief executive from the time of the acquisition?

“Yes, for once I agree with Bob Diamond – banks should be able to fail without taxpayer support or creating systemic problems. The first move should be to revert to the pre-New Labour system of deposit guarantees where the small guy was protected but guarantees were limited so large depositors who were capable of checking the soundness of banks would place large deposits where they were confident that the bank was safe”

I was surprised to discover how many local to where I live and online admitted to having deposits with Northern Rock of more than £50,000, which was the earlier upper limit of deposit insurance cover.

Keeping so much stashed in one relatively small bank was foolish (aka eggs in one basket) but there would have been howls of anguish had the cover not been raised. Besides, I suspect the Treasury’s swift initiative to increase the insurance cover was intended to restore confidence by removing the incentive for runs on other banks fuelled by a verging-on hysterical rumour mill. FDI was originally introduced in America by the Roosevelt administration to stop bank runs there when a systemic collapse of the banking system looked a credible possibility. The moral hazard created by deposit insurance was discussed in depth in Donald Campbell: Incentives (CUP 1995) but few central bankers seem to have read that academic text.

The outcome in America of the moral hazard the Savings & Loan Association crisis there during the 1980s and 1990s – which contributed to the fiscal deficits of the Reagan and Bush Snr administrations. We may consider the large depositors in Northern Rock foolish but an amazingly large number of councils in Britain stashed millions in an Icelandic bank, attracted by the high interest rates offered to depositors. Try this roll call – we have an awful lot of naive and foolish councillors:
http://news.bbc.co.uk/1/hi/uk_politics/7660741.stm

“Are you capable of actually dealing with a rational debate or are you limited to ranting about irrelevancies?”

I tend to upset bankers but then I’ve been told several times that I know more than is good for me. From long experience, any criticism of bankers is usually dismissed as “irrelevant”, which is one of the reasons bankers keep getting away with the rip off.

History of the world repressed groups than have en masse up sticks and left – well off the top of my head Jewish Exodus from Egypt, Pilgrim Fathers to America and the bottom caste Japanese heading for Brazil. Are the bankers next on the list? Slavery, being burnt at the stake, indentured servitude and… being forced to pay taxes?!??

Is that joke a threat?

Let them go, cancel their passports and remove all EU privileges. Enjoy your dosh but never again see London, Paris, Rome or Amsterdam.

@Bob B
So the staff in your branch know more about Lloyd’s corporate desires than the whole of the rest of the world? Maybe they can explain why Lloyd’s was able to renegotiate the terms downwards instead of HBOS negotiating the terms upwards after the initial announcement? Maybe they know why the press reported on Brown taking Victor Blank aside for a word followed by the bid? The depth of your knowledge of the workings of large corporations is illustrated by your decision to advise your branch manager.
It is of course possible that the reason why your criticisms of bankers are dismissed as “irrelevant” is because they *are* irrelevant. Mine are not.
“Btw whatever happened to Lloyds chairman and chief executive from the time of the acquisition?” I didn’t know that it was a secret that both had left – if you had read the morning papers you might have seen that some of Eric Daniels’ bonus had been “clawed back” (actually it was cancelled after it was announced but before being paid) and they stated that he had retired.

@John77: “So the staff in your branch know more about Lloyd’s corporate desires than the whole of the rest of the world?”

Try not to be entirely fatuous. I didn’t say that. It happens that my connections with Lloyds at various levels of management go back nearly 40 years but I’ve been retired for 12 years now so my most frequent contacts nowadays are with local branches.

“I didn’t know that it was a secret that both had left – if you had read the morning papers you might have seen that some of Eric Daniels’ bonus had been ‘clawed back (actually it was cancelled after it was announced but before being paid) and they stated that he had retired.”

That’s right. Daniels, the chief exec of Lloyds at the time of the acquisition of HBOS and the Victor Blank, the chairman, both retired early. My post @43 referred to Lloyds Bank clawing back bonuses.

“In a wide-ranging interview, Sir Victor Blank said that the Lloyds merger with HBOS was the only option available to the bank at the time and that any other decision would have been a financial disaster for both Lloyds and the rest of the City.

“He said the public would make ‘many billions of pounds’ of profit with a sale of the Government’s 41pc stake in the bank.”
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8599120/Ex-Lloyds-chairman-Sir-Victor-Blank-breaks-his-silence-with-an-attack-on-bank-pay.html

So much for your silly claim that the acquisition of HBOS was forced on Lloyds by Gordon Brown. Quite why it would have been disastrous for Lloyds not to have proceeded with the acquisition of HBOS is not made clear. Blank is quoted as demanding restraint on bankers pay. I certainly agree with that but not with his comments on the state of active competition in the market for retail banking. More telling is the assessment of the OFT that the ownership structure of banking in Britain is more concentrated than in peer-group companies.

By reports, British banks prior to the crisis were unusually profitable in comparison with the banking systems in peer-group countries. Had the retail banking market in Britain been competitive, we would expect the profits to have been competed away through better services to customers, lower bank charges and so on. And there is no doubt from the comparative data I’ve seen in various sources that the structure of the retail banking market in Britain is highly concentrated and more so than in peer-group countries.

Judging by the recent reported comments of the OFT @4 with link, the OFT evidently believes a new referral of the banks to the Competition Commission could be appropriate. The high pay of bankers and the billions being paid out in compensation to victims of mis-selling are clear further indications of insufficient competition.

You plainly don’t know as much about banking as you claim but then, as Orwell put it, ignorance is strength.

@ Bob B 51
My connections with local branches of Lloyds TSB go back for more than 50 years. I opened my account (with the branch at which both my parents had accounts) more than 48 years ago.
I normally try to avoid pulling rank but I make an exception for those of a lower rank who try to pull rank in my presence.
I also avoid telling lies. I never said that the takeover of HBOS was forced on Lloyds. If you have been retired for 12 years and are not an ex-professional footballer you should be old enough to remember than twisted arms led to pain not a hypnotic compulsion.
I do not claim to be an expert on banking, unlike yourself – I merely suggest that my comments are less irrelevant and less stupid than yours.

@47 John77: “OFT complaining about reduced competition in retail banking after Gordon Brown twisted Lloyds’ arm to buy HBOS and Darling approved Santander’s acquisition of Alliance & Leicester and Bradford & Bingley is likewise irrelevant to the topic ”

Your claim that “Gordon Brown twisted Lloyds’ arm to buy HBOS ” is simply false.

Lloyds wanted to buy HBOS to strengthen its position and share of retail banking – look at that interview with Blank, the Lloyds chairman at the time, quoted @51 with a link. At the time, the Treasury was already grappling with Northern Rock and RBS when RBS was ranked among the top ten banks in the world in terms of assets.

There was a straight forward issue of whether the Treasury had enough enough senior personnel to take on a growing queue of banks on the verge of collapse once it was appreciated that the Financial Services Authority had failed in its task of regulating the banks – see the Turner report on the FSA in 2009. My impression is that GB and then Darling were jolly pleased with offers by Lloyds and Santander to take of the tasks of dealing with HBOS and Alliance & Leicester because that was the most realistic policy option available at the time.

The competition policy concerns of OFT and commentators regarding Britain’s retail banking market pre-date the financial crisis by years.

The competition issue is relevant because that relates to bankers’ pay, the mis-selling, bank user charges and the scale of complaints to the Financial Ombudsman Service (FOS):

Lloyds tops list of bank complaints: Lloyds TSB received almost 20,000 complaints in the first half of the year, the majority relating to PPI. [September 2011]
http://www.guardian.co.uk/money/2011/sep/06/lloyds-tops-list-banking-complaints

John77: “I normally try to avoid pulling rank but I make an exception for those of a lower rank who try to pull rank in my presence.”

However much rank you claim you are demonstrably clueless about this and much else as far as I can tell but then ignorance is strength, as Orwell put it. The sad thing is that you really have no insight into just how demonstrably ignorant and pompous you are.

@ 53 Bob B
There are two ways of reading the article to which you refer
One is that if Lloyds had not acquired HBOS Lloyds would have gone belly-up, the other is that if Lloyds had not acquired HBOS, HBOS would have gone belly-up.
Are you *really* stupid enough to think that it was the former?

@ Bob B 51 & 53

There are dozens of references to Gordon Brown being the prime mover behind or promoting the Lloyds/HBOS merger. Since I haven’t got time to do a thorough survey I just did a quick Google and list a handful.

http://www.dailymail.co.uk/debate/article-1146069/PETER-OBORNE-Lloyds-TSB-boss-Victor-Blank–crony-gift-disaster.html
http://www.economist.com/node/13145562
http://en.wikipedia.org/wiki/Victor_Blank
http://www.metro.co.uk/news/314239-brown-told-lloyds-to-take-over-sick-hbos
http://www.thisismoney.co.uk/money/news/article-2095082/Strip-Sir-Victor-Blank-title-say-Lloyds-shareholders.html
http://notasheepmaybeagoat.blogspot.com/2011/07/who-ruined-lloyds-tsb-bank.html
http://therapidnews.com/novina/strip-sir-victor-blank-of-his-title-say-lloyds-shareholders
http://www.newsrt.co.uk/news/strip-sir-victor-blank-of-his-title-say-lloyds-shareholders-141702.html
http://www.bgcpartners.com/news-centre/in-the-media/121317379.html

I find it hard to believe that anyone expects us to be taken in by claims that Lloyds TSB had been stalking HBOS because there wasn’t a cat’s chance in hell of the Competition authorities approving a merger until Brown intervened and all senior bank executives knew that. Years ago when Lloyds (without TSB or C&G)) wanted to merge with Barclays the Monopolies Commission blocked it.


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