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Thursday, Adair Turner, Chairman of the Financial Services Authority said in a roundtable discussion in Prospect magazine that he supports special taxes on British banks so as to reduce excessive bonus payments.
Turner said he would consider taxes on financial transactions if increased capital requirements are insufficient. Further, such taxes would be a source of revenue for funding global public goods, he noted.
Such small taxes on financial transactions is known as Tobin tax, which is named after the economist James Tobin. These small taxes were first suggested in 1970s to discourage speculative trading.
Turner noted that tax on financial transactions will reduce banks' profit and in turn the amount available for bonuses.
The FSA chief told Prospect that the financial services sector had expanded beyond a socially reasonable size. It should be cut down to size.
Responding to Turner's comment, British Bankers' Association said the wrong kind of regulation or the wrong kind of taxes could easily affect the position of the UK by driving business abroad. This would mean that UK would get less revenue through taxes and there would be job losses not only in the banking sector, but also in other businesses that provide services to banks.
The Financial Times said citing aides to Chancellor Alistair Darling that no such taxes are under consideration.
Recently, French President Nicolas Sarkozy said tough rules would be imposed on bonuses paid by banks, which would link such financial rewards to performance. As such, new rules will defer bonuses over a period of three years and one third of the award will be in shares.
Sarkozy also plan to press for tough regulations on bonus payments in the next G20 meeting to be held at Pittsburgh in September.
Earlier this month, the FSA introduced a new remuneration code that demand large banks, building societies and broker dealers to follow remuneration policies consistent with effective risk management.
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