So as expected for some time, the UK is going forward with its plan to create a bank levy, taxing the balance sheets of every UK bank.
Details are as follows:
0.04% taxation on total liabilities starting in January 2011 rising to 0.07% in January 2012
In an effort to reduce reliance on short-term financing (repos, overnight lines of credit, etc.) there is a reduced rate on liabilities with greater than a year duration of 0.02% for the first year and 0.035% in 2012.
Tier 1 Capital and Retail deposits are exempt from the levy.
Several other G-20 (yes... including the US) are thinking of enacting similar legislation. The IMF is also proposing alongside the G-20 to create an additional tax on bank profits and bonus payouts. Ultimately the projection is that these taxes will be able to raise 2-4% of GDP in each of the G-20 countries that enact such legislation.
Question now is, what implications does this have for the global financial industries?
Bonuses are already taxed at nearly 50% under current tax law in the US. Will it be worthwhile to keep putting in 100+ hour weeks when bonuses are going to get hit even harder from the effects of this tax? Or will this cause banks to try and devise more innovative off-balance sheet liabilities and products to get around this bank levy?
My guess is you'll see a slow reversion to career relationship banking. Less and less young guys thinking of it as "the" career move. More young sharp quantitative types moving towards engineering and hard sciences. A general disillusion towards finance, this time coming from the industry side, not just populist jackasses. More consulting and teaching gigs for accomplished bankers. More boutiques. That or we all move to Hong Kong:)
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