Mon, Jan 18, 2010 page10

• UK banks hail Obama bank levy as fair

  WE WANT OUR MONEY BACK London bankers complained that they were penalized by tough conditions imposed by the British Treasury when it intervened to prop up banks

  • AFP
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  British bankers have welcomed US President Barack Obama’s announcement of a levy to raise US$90 billion to recoup the Wall Street bailout, saying it restores parity to the global banking sector.

  Obama’s plan appeared to catch European governments and central banks by surprise, as did the president’s aggressive tone — he called corporate bonuses “obscene” and vowed “we want our money back and we are going to get it.”

  Until now, bankers in the City of London, the other main financial center along with Wall Street, have claimed they were unfairly penalized by the tough conditions imposed by the British Treasury when it intervened to prop up banks.

  British banks have also argued that the government’s imposition of a 50 percent tax rate on bonuses until April could cause high performers to pack their bags and head for jobs in countries with less restrictive rules.

  “The US has moved up to the playing field that we are already on,” British Bankers’ Association chief executive Angela Knight said.

  “These are two distinctly different situations. The US has a deficit that it wants banks to meet. In the UK we are paying more and we started paying earlier and UK taxpayers will get back more than they contributed, which I think is only right,” she said.

  Knight said the “real competition” for global banking jobs now was not between the US and the UK, but between the rest of the world and the fast-developing finance sector in China and elsewhere in Asia.

  She said, however, that as much as people in Britain were concerned about the bonuses issue, “they would be even more concerned if all the other jobs that hang off the sector and the tax that comes from them were to move elsewhere.”

  But some analysts think banks are deliberately exaggerating the potential risks of staff fleeing the traditional centers because it allows them to argue that they should continue paying themselves the multimillion salaries.

  Keith Pilbeam, professor of international finance at City University in London, praised the Obama plan for spreading the repayments levy over 10 to 12 years, but said it failed to address the “central issue.”

  “The market failure is banking pay. The share prices are down massively and yet the bonuses and high pay are continuing,” he said.

  “Something does need to be done about that and it might be necessary to bring in pay caps through legislation,” he said.

  He scoffed at suggestions that bankers were likely to flee the City and Wall Street if stricter restrictions were clamped on their pay and bonuses.

  “It is just scaremongering from the banks. There is no way these guys are leaving London and New York. Some people around the margins might leave, but so what?” he said.

  “And anyway, where is the talent they talk about when these guys have just destroyed shareholders’ companies?” he asked.

  Kevin Young, a Fellow in Global Politics at the London School of Economics, said neither the Obama plan nor British Prime Minister Gordon Brown’s bonus tax would lead to the wider reform of the financial system that many think is necessary.

  “It is inevitable that many banks and their associations won’t like it [the levy] — but ultimately it is a very minor measure designed to recoup funds, and does so over a long period of time,” he said.

  “It is more than a drop in the ocean, but is not an ambitious plan for reform — rather just a way for the US taxpayer to recoup their cash,” he said.
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