Imposing a tax on banks as a means of reducing risk to the financial system is an “inferior instrument” German central bank head Axel Weber said on Friday.
“Even though such a tax could be useful in recouping some of the costs of the crisis, it is an inferior instrument in terms of internalizing the effects of risky activities on financial stability,” Weber told a central bank seminar near the western German city of Wiesbaden.
Weber is also a senior official at the European Central Bank.
In a reference to a recent German government decision to ban naked short selling of certain securities, Weber said “the complete prohibition of certain activities is a very far-reaching market intervention, especially since these activities do not necessarily have zero economic value-added.”
Germany’s financial regulator BaFin last week unveiled a ban on naked short-selling of certain stocks, eurozone government bonds and credit default swaps, a kind of protection against default by state borrowers.
Naked short selling occurs when an investor sells a stock or other asset they do not own or have not even borrowed, aiming to buy it back later at a lower price to pocket a profit. It can create highly damaging volatility on financial markets.
Meanwhile, most G20 nations share Canada’s aversion to a global bank tax, Canadian officials said on Friday ahead of Prime Minister Stephen Harper’s trip next week to London and Paris to discuss financial reforms.
There is “general agreement among the G20” that taxpayers should not cover the costs of rescuing failed banks, Harper’s spokesman Dimitri Soudas told a press briefing.
Canada claims a levy on banks would ultimately be passed onto consumers through higher banking fees.
As well, several G20 nations “share Canada’s position” that a bank tax would penalize financial institutions that remained strong and prosperous while several of the world’s banks failed, Soudas said.
Most G20 nations, many of which did not experience bank failures during last year’s financial crisis, including Canada, are not ready to impose a bank tax, a senior official said.
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