Here’s an idea: instead of taxing stop funding the banking sector

I spoke about this before but it has come back as a subject: taxing banking trading, I think, transactions. Now it is an official from the Romanian Ministry of Finance.

This is wrong in so many levels I am sorry that I have to point the obvious. Again.

As you know I am not a big fan of the current banking sector structure, in Romania and overseas, but I still do not support a tax on financial transactions.

Here are few reasons why this will not work.

First and most obvious, if you are concerned about government revenues then stop paying for unprofitable banks to stay alive. You, any government doing this, will save much more money that you would ever gain from taxing financial transactions.

Second, as banks are enjoying now an oligopoly any tax cost will be transferred to consumers. The most disturbing result from all this will be that those companies using financial instruments to lower risk in their balance sheet might have to live with the market volatility. In the long run I will not be surprised if this tax will show up in higher inflation through higher costs in the economy from the extra volatility.

Third, it will be a matter of time until banks will learn how to avoid the tax. The profit from financial transactions is too important to their bottom line to leave matters like this.

Finally, the banking sector is already in trouble and under-capitalized. It does not need another tax to push it over the edge. It is capable of doing that on its own. There is always more Greek, Spanish, Portuguese, Italian etc. debt to be financed.


6 thoughts on “Here’s an idea: instead of taxing stop funding the banking sector

  1. 1. In RO nu se platesc subsidii bancilor. Dimpotriva, nivelul de taxare, prin RMO (chiar si scazute cum sunt acum, sunt remunerate cam zero – in Occident ele sunt neglijabile, de aici si problemele de lichiditate) si provizioane este crunt. De aici dobanzi active de doar 4-5% peste cele pasive. Ce-i drept, provizioanele sunt deductibile si reduc profitul brut,dar sunt bani blocati si te uiti si la procentele implicate.
    2. Unul din avantajele crizei este, in RO, destramarea faimosului oligopol. Un client cu bonitate obtine azi prin vizite succesive la diverse sucursale conditii din ce in ce mai….ieftine.
    Probabil postarea, fiind redactata in engleza, se adreseaza perspectivei occidentale.

    1. Eu ma refeream la o impozitare noua a tranzactiilor financiare. Nu are legatura cu RMO, care poate fi vazut ca o taxare indirecta a ecoomiilor populatiei.
      2) Nu vad cum s-a destramat acest oligolpol cand pretul imprumuturilor este dat de banci, si difera foarte putin de la o banca la alta. Numarul si forma comisioanelor este similar. Exista aceleasi restrictii la retragerile in valuta. Am un post special despre oligopol in sistemul bancar pe la iceputul unii cred.

      I write in English so my views can be judged not only by Romanian readers but also by foreigners. This way I make sure that I do not say stupid things and they remain here in Romanian. This is why research done at all central banks, for example, is in English. Of course the exception is NBR. 🙂

  2. Good point, excellent analysis. Politicians think they have a right to give public (our) money to banks (or even a mere guarantee) – just like in Prima Casa, then they think they have the right to take money from the banks (=customers like me who need a small credit). I’ve been to a conference of Mr. Dacian Ciolos (European commissary) and this is precisely the justification he offered for taxing of the financial industry: when they needed money we gave them money, now we need money, we can take. This is nothing but a white check for politicians – they gave money to some banks (they one they are friends with) because they individually profited from it, and they take money from all banks (=customers)

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