The new UK bank levy is fantastic

Go read Robert Peston’s summary.  Here’s a summary of his summary:

  • It does not apply to:
    • retail deposits;
    • tier-1 capital; or
    • repurchase agreements (repos) with sovereign debt posted as collateral,

    so only the “risky” wholesale funding is targeted;

  • There will be nothing to pay for banks with eligible liabilities totalling less than £20 billion, so only the too-big-to-fail banks are targeted;
  • There’s a lower rate for eligible liabilities whose repayment date is at least 12-months away, so there is a link to liquidity and an incentive to move away from short-term funding;
  • It will be implemented over time, so there will not be any sudden shake-up to the British financial industry which might hurt the broader economy;
  • France and Germany have announced similar schemes, so there can be fewer complaints about a loss of competitiveness; and
  • When other countries implement similar schemes, the amount due will be adjusted to avoid double-taxation, so, again, there can be fewer complaints about a loss of competitiveness.

Fantastic.

Estimates are for £2 billion per year in revenue to the government.  I do wonder if that is assuming that the banks retain their current funding structure (which they won’t) or if allows for a gradual move away from short-term wholesale funding.

In any event, this is good for retail bank customers … the banks will now have an extra incentive to woo us for our deposits.

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