Britain's banks will be urged by the Treasury to take multimillion pound losses as part of Europe-wide plans to prevent a catastrophic meltdown of the Greek financial system.
Despite the assurance of prime minister David Cameron that the UK taxpayer will not pay towards the latest EU bailout of Greece, Treasury officials are working behind the scenes to persuade British banks holding Greek bonds to take a "haircut" now as the best way to avert a potential global crisis. Britain's banks hold about £2.5bn of Greek bonds.
This is a ludicrous position to take.
Cameron says the UK will not bail out Greece.
But we'll offer more tax losses to the banks for their failure to recognise risk instead.
And those tax losses reduce our tax revenue.
Which amounts to much the same thing as bailing out Greece - except we pass the benefit to the banks instead.
Fantastic! Another great Tory cunning plan to help the banks ahead of everyone else they hope no one will notice.
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And who but the bank regulators authorized the banks to leverage 62.5 to 1 when lending to Greece because of its credit ratings between November 2002 and December 2009, just because of its credit ratings?
Nannies care for risks perceived, regulators for risks not perceived. Do you have bank regulators or nannies?
Everyone knows that there really are no good options as far as the solutions to the financial crisis in Greece are concerned. But what seems as a paradox to me is the current decision of the EU to pour even more money into the additonal rescue packages. When some European countries refused to contribute into them last year they were strongly criticized and now that the world leaders see that the accumulation of debt won’t solve the crisis they ask for the same thing once more.
Actually, not so ludicrous when you consider that several banks have no liability to UK Corporation tax due to accumulated losses and are very unlikely to have any net liability in the next three years. You surely don’t expect treasury officials to suddenly start looking farther ahead than the next election just because we’ve had a change of government?
is it the same? surely the banks have to take a hit and making losses is their punishment for failing to assess risk properly.If that hits our tax take that’s unfortunate but its better than bailing them out and socialising their losses, which gives them no incentive to lend responsibly in the future.
This post has attracted a fair number of troll comments
I have deleted them. I had some pleasure in doing so when some followed up their comments with abuse because I had not approved their comments on hour or so after they posted them. That’s because I was out with my family. Trolls may live sad lives in their bedrooms: some of us don’t.
Well, are you surprised? Saying that asking the banks to accept a cut in the value of their assets is helping the banks because a few of them can reduce their tax bill by one-quarter of the loss is waving a red flag at a bull.
I don’t understand your position here. Should banks continue to recognise assets that are clearly overvalued? Or should they write them down to a more realistic level?
Given that the biggest creditors to Greece are of course banks I don’t see what point you are trying to make?
Or is it just the tax relief that you object to? Losses clearly arise as a result of failure to recognise risk – hardly earth-shattering – unless a business is just starting up. So by your logic no business should ever get relief for tax losses.
I was making a point about the inconsistency of David Cameron
Ah, I see – so there was nothing of any intrinsic merit or foresight in what you were saying – just cheap political point-scoring. Thanks for clearing that up.
When we face a situation where we are dependent upon the good judgement of David Cameron to save our economy and he shows persistently that is not in possession of that judgement that’s not cheap political point scoring – that’s making a comment laden with intrinsic merit and foresight
I am not sure I am following this. If the taxpayer picks up the tab for Greece, the taxpayer meets 100% of the bill. If the bank picks up the tab, the bank pays 74% (100% less 26% CT relief) and the taxpayer is stung for 26%. Not good, but not as bad as paying 100%. Am I missing something?
The point is that the Coalition is being inconsistent – which was the point I was trying to make
I thought your point was that the banks taking losses is ‘the same as’ a treasury bailout? That, after all, is your title.
It’s not the same though, is it? There is just some tax relief.. because that’s how tax works.. and whilst I’m happy to see politicians criticised for being disingenuous, I don’t expect the to go through the tax implications of every statement.
I don’t believe you
And I do expect them to do so
Why not? The say they’re accountable for public funds. What’s wrong in saying they should be?
For clarity, I don’t mean to say that they shouldn’t consider the tax implications of what they propose.. rather that they needn’t perpetually list them out.
You should not be so rude to Lee who was making a valid point without insulting you.
Starting from Square 1 – This is about a story in The Guardian, not an extract from Holy Writ
Square 2 – David Cameron is not a Treasury Official.
Square 3 – a Treasury official putting pressure on banks to “take a haircut” is not helping banks.
Square 4 – it will not affect the tax bill of Lloyd’s or RBS in the immediately foreseeable future: their shareholders will take 100% of the pain; Barclays and HSBC will get some tax relief only to the extent that they are paying tax on UK profits and that will be less than 25% (since most bonds are not due to mature this year) of the loss.
Square 5 – The cost to the taxpayer (assuming this is true) will be de minimis compared to the cost in lost taxation on lost profit from exports to Greece if it was formally declared in default and unable to pay for imports.
Square 6 – so how is pressure from a Treasury official appointed by the Labour government a cunning Tory plan to help the banks?
It looks more like a Labour appointee’s cunning plan to make bank shareholders bear a share of the cost of concealing a Greek default in order to reduce the cost to the taxpayer of a domino-effect collapse of the Potuguese bail-out.
Regardless of either of our opinions on young Cameron, Square 5 means that this is not evidence that Cameron is not in possession of judgement – if he organised this (which I personally doubt) it is a cunning plan to benefit the UK taxpayer at some, but lesser, cost to shareholders in UK banks.
Oh dear: slight error there.
David Cameron is First Lord of the Treasury http://en.wikipedia.org/wiki/First_Lord_of_the_Treasury
2/10 – do again