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.
UK FSA chair slams City of London’s ‘socially useless’ excesses, floats Tobin tax
Separately, French President Sarkozy proposes ‘bonus-malus’ for French banking sector.