British bank sector hails Obama bank levy as fair
Obama's plan appeared to catch European governments and central banks by surprise, as did the president's aggressive tone -- he called corporate bonuses "obscene" and vowed "we want our money back and we are going to get it."
The proposals also raised eyebrows because the United States has shown great reluctance to impose global rules governing bankers' bonuses.
But the announcement appeared to be timed to tap into public anger at the paying of billions of dollars of bonuses over the next few weeks in a sector which had to be rescued by governments worldwide just months ago.
Until now, bankers in the City of London, the other main financial centre along with Wall Street, have claimed they were unfairly penalised by the tough conditions imposed by the British Treasury when it intervened to prop up banks.
British banks have also argued that the government's imposition of a 50-per cent tax rate on bonuses until April could cause high performers to pack their bags and head for jobs in countries with less restrictive rules.
A combination of the two factors, British banks have warned, risks leaving them at a disadvantage compared to their colleagues in other financial centres.
So the British Bankers' Association (BBA), an industry body representing the sector, welcomed the Obama plan as a "levelling of the playing field."
"The US has moved up to the playing field that we are already on," BBA chief executive Angela Knight said.
"These are two distinctly different situations. The US has a deficit that it wants banks to meet. In the UK we are paying more and we started paying earlier and UK taxpayers will get back more than they contributed, which I think is only right."
Knight said the "real competition" for global banking jobs now was not between the US and the UK," but between the rest of the world and the fast-developing finance sector in China and elsewhere in Asia.
"If you are at a headquarters and you are deciding on strategic plans for the next two, or five to 10 years, what we don't want to see is action here in the UK that would see those centres being moved to the Far East."
She said that however much people in Britain were concerned about the bonuses issue "they would be even more concerned if all the other jobs that hang off the sector and the tax that comes from them were to move elsewhere."
But some analysts think banks are deliberately exaggerating the potential risks of staff fleeing the traditional centres because it allows them to argue that they should continue paying themselves the multi-million salaries.
Keith Pilbeam, professor of international finance at City University in London, praised the Obama plan for spreading the repayments levy over 10 to 12 years, but said it failed to address the "central issue."
"The market failure is banking pay. The share prices are down massively and yet the bonuses and high pay are continuing," he said.
"Something does need to be done about that and it might be necessary to bring in pay caps through legislation."
He scoffed at suggestions that bankers were likely to flee the City and Wall Street if stricter restrictions were clamped on their pay and bonuses.
"It is just scaremongering from the banks. There is no way these guys are leaving London and New York. Some people around the margins might leave, but so what?
"And anyway, where is the talent they talk about when these guys have just destroyed shareholders' companies?"
Kevin Young, a Fellow in Global Politics at the London School of Economics, said neither the Obama plan nor British premier Gordon Brown's bonus tax would lead to the wider reform of the financial system that many think is necessary.
"It is inevitable that many banks and their associations won't like it (the levy) -- but ultimately it is a very minor measure designed to recoup funds, and does so over a long period of time," he said.
"It is more than a drop in the ocean, but is not an ambitious plan for reform -- rather just a way for the US taxpayer to recoup their cash."
What the introduction of both measures would change the most, he said, "is the public's perception that these leaders are addressing a systemic problem."
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