Tuesday, June 15, 2010

Update on Global Bank Levies

Problem: several different bank taxes have been proposed but none have been implemented, partly as there is confusion about what each should be for

Suggested approach: widen the debate to publicise all the benefits of each tax, then push for internationally coordinated asset levies together with national taxes on bank profits and selected financial transactions.

Since the last post here on this hot topic, two major developments have moved the debate a long way forward. The IMF has proposed two new bank taxes: a Financial Stability Contribution and a Financial Activities Tax, and a popular movement aimed at funding development (the Robin Hood campaign) has pushed financial transaction taxes onto the international agenda.

At the end of this month in Toronto, G20 leaders are likely to discuss global levies and transaction taxes, despite opposition from host country Canada and others. Germany, France , the UK and USA are keen for a bank levy on assets. No consensus exists on profit and transaction taxes.

So what’s on the table?
(22 June update - UK has introduced an asset levy and said it will consider a profits tax).

Thursday, June 10, 2010

Conflicted credit ratings

Problem: ratings agencies conflicted by their issuer-pays business model

Solution: fund agencies through a levy on security purchases, distributed according to demand

The conflict that ratings agencies have between offering objective advice and being paid by issuers has inspired a number of proposals.

Most recently, the head of European credit research at Schroders, D. Patrick McCullagh, suggested that investors pay their investment managers to assess credit quality as part of buy-side research, consistent with the caveat emptor principle, with the cost picked up as a management fee borne by investors, in whose interests the rating is conducted. But is it the best solution?

Wednesday, June 9, 2010

Capitalism and the stable state

Problem: economic growth + population growth + finite resources = crisis, somewhere along the line

Solution: reduce the aggregate requirement for economic growth by enabling businesses to profit from resource reduction instead of top line growth

As any school-kid knows, capitalism rewards individuals for making and selling things. To form capital and reward entrepreneurs there must be constant economic expansion. Business schools teach that growth is an elixir for turning ambition into production and ultimately wealth. This is so widely accepted it is part of our identity. Meanwhile, the human population continues to grow in all but the richest countries, while demand for natural resources is growing so fast that some are bound to run out. What gives?

Tuesday, June 8, 2010

Accounting independence

Problem: The big four accountancy firms are facing reform calls over perceived conflicts of interest, since they are paid by the companies they audit and sell consultancy services to the same clients.

Solutions: Complete separation of the audit and consultancy wings of the big firms or financial separation of audit and consultancy profits, together with some specific changes to the UK Corporate Governance Code on how auditors are appointed.