by Stromy-Annika Mildner
“My commitment is to recover every single dime the American people are owed. […] That’s
why I’m proposing a Financial Crisis Responsibility Fee to be imposed on major financial
firms until the American people are fully compensated for the extraordinary assistance they
provided to Wall Street.”1 (U.S. President Barack Obama)
“The experience of the crisis has demonstrated the importance of a well designed legal
framework for effective bank resolution. The German government has just decided to implement
such a framework, complemented by a levy in the shape of a ‘banking fee’.”2
(German Finance Minister Wolfgang Schäuble)
When Senate Finance Chairman Max Baucus opened the Committee’s hearing on 4 May
2010 by quoting Thomas Jefferson in saying that “banking institutions are more dangerous
[…] than standing armies” he sounded almost like German Federal President Horst Köhler,
who repeatedly called the financial markets a “monster.” The governments of both countries,
Germany and the United States, are currently discussing how best to recover the costs of
the financial crisis and how to reduce excessive risk taking behavior in the financial sector.
While the Obama administration and the Merkel government agree that financial institutions
should be held responsible, paying their due share in getting the economy (and public finance)
back on its feet, there are considerable differences in their approaches. And while
both support a financial institution responsibility fee, the devil, as so often, lies in the detail.
At the G20 summit in Pittsburgh in September 2009, President Barack Obama and German
Chancellor Angela Merkel, together with the other G20 leaders, asked the IMF to “[…] prepare
a report for our next meeting [June 2010] with regard to the range of options countries
have adopted or are considering as to how the financial sector could make a fair and substantial
contribution toward paying for any burden associated with government interventions
to repair the banking system.”3 In response, the IMF proposed two bank taxes in late April
2010. Under the Financial Stability Contribution, all institutions would initially pay a flat-rate
bank levy. Over time, this “backward-looking” fee is to become more “forward-looking” by
reflecting riskiness and systemicness, meaning that those who pose a greater danger to
the financial system should also pay more. The proceeds of this levy could either finance a
resolution fund or feed into general revenues. The Financial Activities Tax would be levied
on the profits of financial institutions.4 The goals of these proposals are two-fold: first, to ensure
that the financial sector pays for the expected net fiscal costs of direct support during
the financial crisis and, second, to reduce the probability and costliness of future crises by
inducing less risky behavior and funding possible bail-outs.
At the G20 meeting of Finance Ministers and Central Bank Governors on 23 April 2010, the
leaders were not able to find a consensus on whether a financial institution tax was an appropriate
element of regulatory reform as Canada, Australia, and Japan are decidedly opposed
to a bank fee. Likewise, major emerging economies such as China, India, and Brazil
are less than thrilled about the idea of burdening their financial institutions with a new tax.5
The G20 only called upon the IMF to “further work on options to ensure domestic financial
institutions bear the burden of any extraordinary government interventions where they
occur.”6 However, two countries have already put forward proposals for a fee on banks: the
United States and Germany. But, the approaches have remarkable differences: the U.S................
.................
ffffwhy I’m proposing a Financial Crisis Responsibility Fee to be imposed on major financial
firms until the American people are fully compensated for the extraordinary assistance they
provided to Wall Street.”1 (U.S. President Barack Obama)
“The experience of the crisis has demonstrated the importance of a well designed legal
framework for effective bank resolution. The German government has just decided to implement
such a framework, complemented by a levy in the shape of a ‘banking fee’.”2
(German Finance Minister Wolfgang Schäuble)
When Senate Finance Chairman Max Baucus opened the Committee’s hearing on 4 May
2010 by quoting Thomas Jefferson in saying that “banking institutions are more dangerous
[…] than standing armies” he sounded almost like German Federal President Horst Köhler,
who repeatedly called the financial markets a “monster.” The governments of both countries,
Germany and the United States, are currently discussing how best to recover the costs of
the financial crisis and how to reduce excessive risk taking behavior in the financial sector.
While the Obama administration and the Merkel government agree that financial institutions
should be held responsible, paying their due share in getting the economy (and public finance)
back on its feet, there are considerable differences in their approaches. And while
both support a financial institution responsibility fee, the devil, as so often, lies in the detail.
At the G20 summit in Pittsburgh in September 2009, President Barack Obama and German
Chancellor Angela Merkel, together with the other G20 leaders, asked the IMF to “[…] prepare
a report for our next meeting [June 2010] with regard to the range of options countries
have adopted or are considering as to how the financial sector could make a fair and substantial
contribution toward paying for any burden associated with government interventions
to repair the banking system.”3 In response, the IMF proposed two bank taxes in late April
2010. Under the Financial Stability Contribution, all institutions would initially pay a flat-rate
bank levy. Over time, this “backward-looking” fee is to become more “forward-looking” by
reflecting riskiness and systemicness, meaning that those who pose a greater danger to
the financial system should also pay more. The proceeds of this levy could either finance a
resolution fund or feed into general revenues. The Financial Activities Tax would be levied
on the profits of financial institutions.4 The goals of these proposals are two-fold: first, to ensure
that the financial sector pays for the expected net fiscal costs of direct support during
the financial crisis and, second, to reduce the probability and costliness of future crises by
inducing less risky behavior and funding possible bail-outs.
At the G20 meeting of Finance Ministers and Central Bank Governors on 23 April 2010, the
leaders were not able to find a consensus on whether a financial institution tax was an appropriate
element of regulatory reform as Canada, Australia, and Japan are decidedly opposed
to a bank fee. Likewise, major emerging economies such as China, India, and Brazil
are less than thrilled about the idea of burdening their financial institutions with a new tax.5
The G20 only called upon the IMF to “further work on options to ensure domestic financial
institutions bear the burden of any extraordinary government interventions where they
occur.”6 However, two countries have already put forward proposals for a fee on banks: the
United States and Germany. But, the approaches have remarkable differences: the U.S................
.................
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