Bank of England Financial Policy Committee member Michael Cohrs is calling for the world’s biggest banks to pay an additional tax to fund reserves that can be used to pay resolution costs in the event of a banking failure.
According to The Times, Cohrs says the levy should be on top of the extra 2.5 per cent of capital the largest banks will have to hold when the international Basel III rules come into play.
Giving a speech in Bristol, Cohrs did not say which banks should pay the tax, but said: “The regulatory bodies should consider penalties or taxes on the largest banks to create ‘insurance’ funds which will be used when resolving one of the exceptionally large financial companies and to create an economic incentive for the firms to downsize.”
Cohrs is a former investment banker who has worked at Goldman Sachs and Deutsche Bank. He said many large banks are too big and complex to be managed or to be resolved “without a lot of broken glass” and added large banks could shrink and delever easily without affecting loans to the real economy.