Banks should pay for the crisis

Despite the anger of public opinion, the warnings of governments and the threat of imposing new taxes, the banks continue on a business as usual basis to provide gigantic bonuses for their financial agents. According to Le Monde (16 January), more than a billion euro will be given to traders based in Paris, which equates to about 62000 people getting the minimum wage during a year.

On 14 January, Pdt Obama has announced the instauration of a special levy on financial transactions that banks should pay as a fee for their responsibility in the crisis. However, this tax should bring around 117 billion dollars over ten years to the national budget . This amount corresponds to the estimated amount of losses resulting from the TARP (Troubled Asset Relief program) put in place in October 2008 and revised in February 209 by the Obama administration.

Initially, the TARP had foreseen that a plan to recover financial losses to the Treasury would then be set up before 2013. But, in view of the spectacular profits showed by the largest financial institutions, Pdt Obama has decided to anticipate his decision to set a new tax on financial transactions which will come into force on 30 June. It is clear that the largest companies will generate most of the tax revenue and that the tax will be proportional to the debt ratio; in other words, banks having more deposits and less debts will pay less whilsts banks more exposed to risks will pay more. Those which promote security in their financial operations will therefore be favoured.

This measure is set to open the wider debate about financial regulation and how to deal with excessive risks for the real economy. It is an encouraging signal sent by the US to the rest of the world. Of course, it will not solve all the problems; it might also have some adverse effects if consumers will eventually bear the cost of the tax in the purchase of financial services and if banks will be reluctant to increase their lending activity.

In past years, taxation on capital gains decreased under Clinton from 28% to 20% and Bush brought it further down to 15%. The new tax represents no more than 0,15% of total financial assets held by banks. Is this the price to pay by Wall Street for its responsibility in the crisis? It is probably more, but the important thing is that we put an end to moral hazard. Banks should not be bailed out anymore with tax payers money and should pay for their mistakes.