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GUEST COMMENT: The British government has started treating banks like an ATM

By Jason Karaian, Financial Services Industry Analyst at the Economist Intelligence Unit.


When Britain’s government introduced a banking levy, it was pitched as a measure to “encourage banks to move to less risky funding profiles”. To this end, a bank faced a steeper rate if it relied on short-term wholesale sources of funds instead of more stable, long-term options.

Now, the levy is discussed as a way to ensure that banks make “a fair contribution” to the economy. It is an important difference. After a host of factors, including the levy, motivated banks to scale back on flightier sources of funds, the Exchequer found that its levy will not raise the projected amount. Instead of acknowledging that the measure may have played a part in changing banks’ behaviour, the government hiked the levy rate in order to raise the desired amount.

Today, the Treasury made it clear that it wants to raise 2.5bn from banks every year. There is little banks can do to avoid contributing their “fair” share to this target. Thus, the levy is now purely a revenue-raising exercise instead of an incentive to alter banks’ conduct.

It seems that government will leave it to other national, regional and global reforms to address making the country’s financial system safer. When it comes to the banking levy, the idea is simply to extract cash from a politically expedient target.

Comments (5)

  1. well thats fair enough aint it? there is public money in there that pays for employee bonuses and champagne at xmas + strip clubs for clients. only fair we collectively make some withdrawals now and again

  2. No risk. No reward. The banking sector is no longer really part of the private sector per se, as that would mean they would be subject to the fairplay rules of free markets, if you lose you pick your ball up and go home. Since they recieved and continue to recieve the explicit support of the tax payers the profits should go to the taxpayer. They can take this out of the divvy or through magic levys they decide to make up.

  3. The power of these global banking institutions has to capped. The banks still have the option to leave the UK and not pay, further black mailing the goverment with the threat of jobs lost to Asia. Such multinationals have more money than nation states and should be broken up to stop absuses such as the run up to the 2008 financial crisis.

  4. No problem – they have ATMs in Zurich and APac.

  5. I think some people are missing the point. This is not about banks being squeezed dry – this is about Government being dishonest. You cannot market and sell one thing only to reveal, later down the road, that it is something completely different and your initial pitch was completely misleading.

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