Tax Research UK

FT.com / Capital Markets - CFTC urges end to derivatives secrecy.

This morning the EU wants to ban the use of credit default swaps on sovereign debt.

Now from the US:

A leading US financial regulator on Tuesday called for the prices of derivatives trades to be disclosed in the same way as stock prices, saying only large Wall Street banks benefited from the current lack of transparency.

Gary Gensler, chairman of the Commodity Futures Trading Commission (CFTC), said standard credit default swaps and other privately traded over-the-counter derivatives needed drastic reform, reflecting their role in the financial crisis.

Fantastic.

And an overdue recognition that banks profit by exploiting their market position to secure super-normal profits at the expense of others.

The right and bankers will of course argue tooth and nail against this. They love free markets - but only to the extent that they can exploit and abuse them, as they have been to date.

Is it possible things might really be changing?

Richard Murphy Banking

Brussels targets derivatives to help euro | Business | guardian.co.uk .

The European commission announced moves today to shore up the euro and ward off market pressure on Greece by considering a ban on complex derivatives allegedly being used to undermine the single currency.

Yes! Yes! Yes!

We need to say some forms of trading and some forms of financial product are destructive, serve only to undermine the state, democracy and the well being of ordinary people solely to benefit an elite and must be banned.

Of course, some of us have said that for some time.

It’s good to see that the world is accepting the argument.

Richard Murphy Banking

At the core of my work is a concern about poverty. Some of that is in the UK, some in developing countries.

I and others have argued that the combination of opportunities that banks and secrecy jurisdictions provide promotes capital flight out of developing countries and into western economies – flight that we have argued might amount to $1 trillion a year.

Now the official Norwegian aid agency – Norad – has produced a new publication that examines the literature (including some by me) on this subject. I strongly recommend the resulting work, which is available here. As the preface says:

Systematic studies of the banking sector’s involvement in facilitating capital flight from developing countries are limited. This paper was commissioned by Norad’s Anti‐Corruption Project (ANKOR) for the purpose of summarising key lessons from the existing literature and to identifying knowledge gaps. It focuses on capital flight from Africa and how much needed public finances are hidden abroad. The study is a desk study, based on a review of library and online literature databases and reports and documentation from national and international organisations.

The material reviewed does not provide the information necessary to draw firm conclusions as to what constitutes ‘best practice’ in providing donor support for better regulation of banks and financial institutions in Africa. The term ‘best practice’ itself is unclear and depends much on the environment within which finance institutions work. The review shows that banks should not be disregarded as passive players when analysing capital flight. Banks play an active role in facilitating capital flight from Africa. However, to improve the regulation of the banking and finance sectors, there is a need for more detailed knowledge on how banks actually operate as facilitators and the mechanisms applied.

This may be a technical paper, but this sort of study takes matters forward in a real way that helps to alleviate poverty. I warmly applaud Norway’s initiative in publishing it.

Richard Murphy Banking, Development, Secrecy jurisdictions, Tax Havens

London bankers halt the great escape to Geneva | Business | The First Post.

The exodus of British bankers fleeing Alistair Darling’s tax hike and bonus levy is on hold. According to Terry Smith, chief executive of Tullett Prebon, far fewer brokers than expected have sought posts in less tax-onerous jurisdictions like Geneva or Singapore.

Amazing! You mean they were bull-s**tting all along? How could that be? Aren’t these people the omnipotent masters of the universe?  And yet they couldn’t even work out that staying put was really the best option?

I’m staggered.

Mind you - they could have found that out here all along.

Richard Murphy Banking

FT.com / UK / Economy & Trade - Supertax pulls in £2.5bn for UK Treasury.

The FT notes:

The supertax on bank bonuses will reap more than £2.5bn for the Treasury, giving the UK government an unexpectedly large windfall to spend ahead of the general election, a Financial Times survey of 16 global banks has found.

So please don’t tell me special taxes on banks don’t work.

They unambiguously do.

Richard Murphy Banking

Letters: Despite the mistakes, we need bankers | Business | The Guardian .

There’s been an amazing response to the letter of which I was a co-signatory in the Guardian yesterday on banking in the letter’s page of the same paper today.

Stuart Fraser, who is chairman of the, policy and resources committee, City of London Corporation trots out the usual line about the City paying lots of tax (without noting the negative impact on us all) and then says:

These benefits could easily be diminished if we unilaterally pursue the policies suggested, instead of building a consensus among our international competitors, many of whom are facing similar issues, especially in the US and the EU. We cannot afford to place our international competitiveness in jeopardy by implementing tax and regulatory proposals that risk driving top City firms and hence the provision of the financial services and products we need, to more welcoming business environments overseas. This will only damage the UK economy by making the raising of capital for new businesses more difficult, as well as raising its price and by reducing our tax revenues and employment prospects.

On other words the only argument is the usual one of ‘if you don’t love us and show it by giving us enormous tax advantages we’ll leave’.

But we know as a matter of fact bankers aren’t leaving. Fewer left last year than in 2008 and the totla number was just over 1,000 - a tiny proprtion of the total.

This argument is now so worn out it is irrelevant. If this is all that can be offered as reason for maintaining the status quo we can now safely say the debate has been won, the argument is over, and now all that is required is that the process of change begin.

Let’s get on with it.

Richard Murphy Banking

Letters: We need wholesale reform of the banks | Business | The Guardian .

From this morning’s Guardian:

As Jill Treanor reports (Anger escalates over Royal Bank of Scotland plan to pay £1.3bn bonuses, 25 February), this week’s announcement by the 84% tax-payer-owned bank will be unpalatable to the vast majority of British citizens. The very same institutions that left Britain and the world economy tilting on the edge of collapse have benefited the most from state action. Despite this, they are once again cashing in unjust and unearned rewards. In light of this, it’s right that we demand “never again”: we cannot afford to turn back to the way our banks were run before the crash. We now need wholesale reform.

We therefore call on the government to instigate a package of regulations and reforms that would amount to a new banking settlement, in order to bring financial services more in line with the social and economic needs of the people. In the short term, we should look at capping remuneration (set as a percentage of net revenue), this would help tackle flagrant high pay, shore up bank balance sheets and provide a level playing field across the banking sector. RBS and Lloyds would then no longer be a “prisoner to the market”. We should also repeat the bankers’ bonus windfall tax, and extend it to hedge funds and private equity houses, the riskiest and shadiest financial operators.

In the medium to long term, we must harness the wealth of the financial sector for socially useful means with a transactions tax. We should also have a new Glass-Steagall Act to separate retail and investment banking. Finally we should now establish a high pay commission. If introduced in the right way, these reforms would significantly transfer risk from the state and taxpayers back on to financial institutions, while at the same time fundamentally change banks behaviour and change the culture of the City. The government must have the conviction to ensure that never again will the short-term financial interests of the finance sector come before the needs of the wider economy and society.

Andrew Simms, Policy Director, nef

Ann Pettifor, author, The Coming First World Debt Crisis

Baroness Helena Kennedy QC

Billy Hayes, General Secretary, CWU

Chris Edwards, Senior Fellow, Economics, University of East Anglia, UK

Dave Prentis, General Secretary, UNISON

Dennis Leech, Professor of Economics, Warwick University, UK

Dr Martin Parker, Universityof LeicesterSchoolof Management

Dr Sally Ruane, DemountfordUniversity

Gavin Hayes, General Secretary, Compass

Geoffrey Hodgson, Research Professor of Business Studies, University of Hertfordshire, UK

Guy Palmer, Director, The Poverty Site

Howard Reed

Lindsay Hoyle MP

Neal Lawson, Chair, Compass

Nick Isles

Paddy Tipping MP

Prof Dave Byrne, DurhamUniversity

Prof George Irvin, SOASUniversity

Prof Gregor Gall, Universityof Hertfordshire

Prof Hugh Willmott, CardiffBusinessSchool

Prof Karel Williams, ManchesterBusinessSchool

Prof Malcolm Sawyer, LeedsUniversityBusinessSchool

Prof Martin Parkker, Schoolof Management,. Universityof Leicester

Prof Peter Case, BristolBusinessSchool

Prof Prem Sikka, EssexBusinessSchool

Prof Stefano Harney, Schoolof Business& Management, QMUL

Prof Tim Jackson, SurreyUniversity

Richard Murphy, Tax Justice Network UK

Rt Hon John Battle MP

Stewart Lansley, author, Rich Britain: The Rise and Rise of the New Super-Wealthy

Sunny Hundal, Liberal Conspiracy

Tony Lloyd MP

Victoria Chick, Emeritus Professor of  Economics, UniversityCollegeLondon, UK

Will Straw, Liberal Conspiracy

Ismail Erturk, ManchesterBusinessSchool

Ann Clwyd MP

Dai Davies MP

Derek Wyatt MP

Frank Field MP

John Austin MP

Mark Durkan MP

Mark Lazarowicz MP

Michael Clapham MP

Michael Meacher MP

Paul Holmes MP

Sam Tarry, Chair, Young Labour

Prof Christine Cooper, Universityof Strathclyde

Richard Murphy Banking

FT.com / Companies / Banks - RBS pays more than 100 staff a £1m bonus.

The FT notes:

Royal Bank of Scotland admitted on Thursday that more than 100 of its investment bankers will take home bonuses of at least £1m for 2009, a year in which the government-owned bank posted a net loss of £3.6bn.

RBS is one of the biggest players in the socially useless fianncial markers. Those who partake are amongst the recipients of these bonuses.

So please don’t now tell me there’s no case for a financial transaction tax of the sort proposed by the TUC, Tax Justice Network, Christian Aid and others in ‘Taxing Banks’ where we firmly predict that one of the benefits of such a tax will be a significant fall in trading volumes  and consequent demand for bankers - with their pay tumbling as a result.

I’m well aware conventional economists do not agree - and they have provided not a shred of evidence, let alone logic, to support their case as yet. They simply say the cost will be passed on to others - but when the customer for more than 40% of all trades in this market is another bank and the number of customers overall is tiny there is no logic in that claim - the consumer is identifiable and able to resist the charge.

I stand by my claim - one of the great benefits of financial transaction taxes will be that they will significantly cut bakers’ pay. And that’s universally considered a good thing by all but bankers and those in awe of them.

Rather oddly, you can’t imagine why they would be so vehement in their opposition unless I was right, can you?

Richard Murphy Banking, Transaction Taxes

FT.com / Europe - Icesave repayment talks collapse.

The FT notes:

Talks have collapsed between Britain, the Netherlands and Iceland about repayment of £3.4bn (€3.8bn) lost by depositors in the failed online bank Icesave, raising fears that the country will fail to meet its obligations.

The people of Iceland do not have that obligation.

They should now vote againts paying the debt. If UK and Dutch regulators did not stop mis-selling in their territories that is their fault.

Richard Murphy Banking

Compass has published a report on banking with the above title. It’s proposals are:

Policy 1: Making the bankers’ bonus windfall tax permanent
Policy 2: Extending the scope of the banker’s bonus windfall tax
Policy 3: Remuneration caps
Policy 4: Financial transactions tax
Policy 5: Separation of retail and investment banks
Policy 6: High Pay Commission

All of which make sense, although I prefer broader taxes on high pay as a means of addressing bonuses than one addressed just at banking.

Richard Murphy Banking