UK FSA chair slams City of London’s ‘socially useless’ excesses, floats Tobin tax

The UK’s top financial regulator has lambasted some of the City of London’s banking and finance activities as ‘socially useless’ and suggested that a version of the controversial Tobin tax idea could be used to reign in its excesses. Speaking at a debate held by Prospect magazine in the UK, Lord Turner, chairman of the Financial Services Authority, said the City had become “swollen” after a decade of excess to “beyond a socially reasonable size”. Turner said a version of the Tobin tax – a 1972 proposal by James Tobin, the US economist, to tax foreign currency transactions in order to tame speculation – could be used to trim outsized financial rewards. Turner told the magazine: “If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit. Higher capital requirements against trading activities will be our most powerful tool to eliminate excessive activity and profits.” But he added: “If increased capital requirements are insufficient I am happy to consider taxes on financial transactions – Tobin taxes.” The revenue from such a tax, he said, could be used to fund “global public goods.” In March this year, Turner produced a report on the UK banking crisis, which proposed remedies including greater bank solvencyratios and the creation of a new European regulator. In the latest interview, he goes further by suggesting that both financial services remuneration and the sector as a whole need cut back in the public interest: “The really fundamental question is whether the overall level of financial services pay is a consequence of the swollen financial sector which has resulted from over-simplistic financial deregulation. This is not a question that any of the politicians have focused on but I think it’s an important and legitimate issue of public concern,” he said. Separately, Nicolas Sarkozy, French President, has announced measures to curb what he called “irresponsible” banking behaviour, notably a bonus-malus system for the payment of financial sector bonuses. Following a meeting with France’s main bank heads, Sarkozy said bonuses would have to be clearly linked to performance and be paid in full over three years with a subsequent two-year, claw-back if the bonus-generating activities turned sour. A third of bonuses should also be paid in company stock, he said. Sarkozy said he would take the proposals to the G20 summit in Pittsburgh on September 24-25 to try and get global agreement on banking bonus practices.