Bank of England chief proposes new global banking levy

5 October 2009

A Bank of England boss has proposed that a new tax should be placed on the banking industry so it can foot the bill for any future crisis.

British banks alone have taken around $58 billion in taxpayers' money in rescue capital and Paul Tucker, deputy governor at the Bank of England, said his proposed new initiative should be in addition to the fees charged to banks for the Financial Services Compensation Scheme.

He told the Institute of International Finance (IIF) in Istanbul that such a charge would stop banks behaving recklessly and encourage the industry to regulate itself.

"If the banking system knew that, in a systemic crisis, the banking industry would over time pick up the bill - if there was a bill - I would like to think that that would change your incentives," he said.

Last weekend's conference also saw Doctor Josef Ackerman, chairman of the IIF, warn that over-zealous regulation should not be allowed to undermine the innovation needed for financial institutions to bring about economic growth for the global economy.

The Financial Services Authority in Britain has announced that its new legislation requiring banks to increase their holdings of government bonds by more than $175 billion will be gradually phased in so the rules do not affect the chance of economic recovery.

By Asim Shah

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