Banks cannot afford another Groundhog Day

On Tuesday last, the Irish Examiner reported that the International Monetary Fund had recommended in its latest Global Financial Stability report that banks should have to pay a levy based on the size of their liabilities. It is a recommendation that most of us could agree with.

However, we would have one prerequisite and it’s a simple and sensible one. Banks must not be allowed to pass the levy onto their customers under any guise or in any shape or form.

Without rehashing too much the events of the last seven years, it’s important that we put this recommendation from the IMF in context. Notwithstanding all of the many other parties and bit players who had a part in the outcome, the prime drivers of the collapse of economies right across the world was the financial services sector.

It may well have started in the USA but it spread like a disease across the world as greed consumed greed and unearned bonuses grew bigger and bigger. That is not an opinion, it is accepted fact.

Under any normal set of business circumstances the organisations so responsible would be put out of their misery. However, without banks and a money supply and management system, economies would simply cease to work.

Allowing Lehman Brothers to collapse in September 2008, making it the largest bankruptcy filing in US history, was effectively an attempt to draw a line in the sand and an effort to mark the cards of those other huge Wall Street concerns that were emulating Lehman’s way of doing business.

Unfortunately, the financial services sector has not learned from its mistakes. If anything, with the continuing growth of high frequency trading, things have become even worse.

Many of these banks now see themselves as being ‘too important to fail’ and they are being aided and abetted, by weak governments, in this belief. With that realisation comes considerable arrogance.

Were it isolated to only Wall Street it would be one thing but it’s not. Banking right across the world is contaminated with this arrogance. In Ireland, we do not have to look very far for the results of this arrogance. Banks part-owned or fully owned by the Government totally ignore the demands and wishes of their main shareholder — the taxpayer.

Government, aka the taxpayer, support was given to get the economy moving again but the only thing that seems to be moving is more money into bankers’ pockets, as the bonus merry-go- round attempts to restart.

Whilst much of the foregoing outlines added reasons for imposing a levy on the banks, the IMF reasoning is based on the fact that having these banks as ‘too important to fail’ has resulted in considerable implicit subsidies footed by the taxpayer.

On Tuesday it was reported that subsidies in the UK and Japan may have been as high as €80bn between 2011 and 2012, and ranged from €15bn to €50bn in the US. This is an awful lot of money for which the taxpayer appears to be getting very little back. But that’s not the crux of the problem.

With banks getting bigger through mergers or there being fewer banks because of withdrawals from markets a failure by a bank couldresult in total catastrophe for an economy.

In addition to better regulation and enforcement of that regulation, a fund needs to be generated that will at least help to support the recovery of an economy should a bank fail.

Taxpayers cannot and will not continue to be a bottomless pit for avaricious bankers. A levy on all surviving banks will help that process. The alternative is that we will get to pay again and again as bankers never seem to learn and politicians keep repeating the same mistakes. We surely do not need another Financial Groundhog Day.