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European Banking Federation slams IMF’s financial activities tax

Wednesday 12 May 2010 - by Andrew Naylor

The European Banking Federation has slammed the International Monetary Fund’s proposals to establish a financial activities tax saying it will not prevent future crises.

The International Monetary Fund published its preliminary recommendations to the G20 on a fair and substantial contribution by the financial sector, ahead of the Washington meetings on 22 and 23 April.

The proposals went further than anticipated and included two separate levies: a financial stability contribution and a financial activities tax.

In an attempt to clamp down on excessive bonus awards, the FAT would be levied on the profits and remuneration of financial institutions.

EBF secretary general Guido Ravoet says: “We expected banks to be required to make contributions to financial stability, but the FAT is astonishing. We fail to see how it can contribute to stability. It is being used to punish banks for the financial crisis.



“We understand the logic of this, but we are not sure it will prevent future crises. These funds will not be sufficient to mitigate the effects of global crises. It would be better to focus on crisis prevention through good regulation and supervision as well as adequate risk management by the banks themselves.â€

The financial stability contribution would be paid by all financial institutions and not just banks. The levy would initially be flat, but tweaked according to the riskiness of a firm’s business model and the extent of the firm’s contribution to systemic risk.

The European Insurance and Reinsurance Federation (CEA) published an open letter to G20 finance ministers highlighting the differences between the banking and insurance sectors.

It said: “The insurance sector has so far weathered the storm in much better shape than banking. Therefore, we believe that it would be inappropriate to require the financial sector as a whole (including insurance) to cover the costs of bailing out one of its branches.â€


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