Sunday, June 6, 2010

Bad Idea of the Week: A Global Bank Tax

A global tax on banks is the dumbest idea we've heard of lately (and I hear a lot of 'em - hell, I even think up some of 'em).  Increased taxes on any business just get passed through to the consumer.  If governments want to prevent banks from engaging in risky practices then change the banking regulations and yank their charters or otherwise sanction them in the event the regulations are broken.  Canada's alternative to this incredibly bad idea is brilliant: make the banks self-insure themselves.  (The Balf has always been a huge advocate of self-insurance, direct reimbursement, etc.).  Our proposal (wave flag here) is to require banks to issue a special type of security that would act as a bond during good times but automatically convert into shares if certain financial conditions were breached, thus also automatically boosting the banks' capital in a crisis like the last one.  The great advantage of such a plan is that buyers of these special securities would know what they were getting into while sparing the innocent taxpayer any danger of having to fund a bailout.  Did I say last financial crisis?  Sorry, I meant the one we're still in.  Steady as she goes, Cap'n Flaherty!