The Bankwatch

Tracking the consumer evolution of financial services

Bank tax, bonuses and unintended consequences

I was a little surprised to see the UK conservatives support a global bank tax. In any event the amount of the bonus at JP Morgan Chase caught my attention, so I took a look at their capital base. With tier 1 capital of $133 bn, the bonuses represent a significant 7% of capital.

Ironically, the international tax will produce the unintended consequence of reducing capital even more., within the limitations of Basle. It is hard to see how a tax would improve governance and capital retention.

Osborne to push for global bank levy

George Osborne, shadow chancellor, said that it was “unacceptable” for banks to be paying large cash bonuses when they should be defending themselves against future disaster. On Friday, JPMorgan Chase, the US bank, kicked off the latest bank reporting season by announcing that it would pay $9.3bn (£5.7bn) in bonuses this year.

"Anders Borg, Swedish finance minister, told the FT that the Americans “have taken a lot of interest” in his country’s stability levy, suggesting some international convergence on the need to insure against the risky behaviour of banks.

Written by Colin Henderson

January 16, 2010 at 03:13

Posted in Uncategorized

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2 Responses

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  1. Isn’t the bonus tax work by taking a portion off the overall bonus pool before it is distributed? Why would it further reduce capital?

    Chris

    January 16, 2010 at 07:54

  2. Chris .. my reading of the commentary, including Obama is that the tax is supplemental to the bonuses.

    Colin Henderson

    January 17, 2010 at 02:12


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