The new tax will not be an \”insurance fund\” for the banking industry, as ministers are concerned that such a measure would simply encourage more risky behaviour of the sort that led to the financial crisis of 2008.
I\’ve said before that I\’m not averse to an insurance levy. I may be right or wrong on this but still…..
However, what we get here is the worst of both worlds. We\’ve got a tax which is there to act as such an insurance levy. However, the cash doesn\’t go into a fund, get separated, used to buy up gilts or anything like that for that rainy day when it will be needed.
It enters the general revenue stream and thus gets pissed up against the wall on outreach diversity advisors. Which are, sad to say, notoriously difficult to sell when you need the cash back to prop up the banking system again.
Now, of course, you could try saying that the existence of the tax means that the banking system will change its ways and it will never need propping up again. In which case I\’ve some premium Brummie coastline you might be interested in. For banking, by definition, is borrowing short and lending long (if you do this you\’re a bank, if you don\’t, you\’re not) and as such it really is different. Any and every banking system is liable to hiccups…..any banking system that cannot have such isn\’t going to be able to do its job of moving risk and money intertemporarily. And if it can\’t do that then it\’s not a banking system.
The two go together: in order to be able to work a banking system is by necessity fragile.
I do understand the point that an insurance fund might make the banks take more risks….I just disagree with it. I think it\’s much more dangerous to give politicians a new revenue stream that they can spend on pet projects while also taking on a huge and uncertain future liability. For when that liability arrives, they\’ll have pissed it away.