The Bank Levy

realitykeeper

Minister McGrath has hinted he may tweak the levy on Irish banks because they have not been passing the higher ECB rates to savers. No doubt he will considder the Italian experience which involved a one off 40% windfall tax on the profits of Italian banks. The Italian government backed down from that because shares were sold off in Italian banks. This raises some important questions. Should a government favour one group of private investors over another. After all, savers are investors in the banks just as share holders are. A saver can lose money if there is a bail in just as a shareholder can lose if there is a market crash. And we have seen in the US, a run on savings can bring down a bank.

Another question that needs answering is who should get the levy revenue if it`s purpose is to punish banks for not passing on ECB rates to savers? Surely that money belongs to the savers and not the government.

Also, in order to force change, wouldn`t any levy on the banks need to cost them more than they can make by ripping off savers? Just because share holders thought a 40% levy on Italian banks was too much doesn`t mean it was enough. The deterrent has to be greater than the prize.

Needless to say, the government will always side with the institution and not just because they want the institution to survive. The government and the bank know that by ripping off savers they can protect borrowers and that will reduce the default rate. Fewer defaults are good for higher house prices but bad for our housing crisis. So this raises the question, does our government really want to solve the housing crisis? It seems to me that they want to be seen to want to do something about it but everything they are doing is designed to make it worse.