IMF's banking tax could backfire

Academics have warned IMF recommendations to establish a bailout pot by taxing banks may backfire.

Tax experts from the Oxford University Centre for Business Taxation said financial institutions were more likely to take bigger risks if there was a financial safety net in place.

In addition to a tax on profits and remuneration, banks would also pay a Financial Stability Contribution, a flat fee on their non-insured liabilities if IMF recommendations are pushed through.

"The IMF sees [the FSC] as a form of insurance premium, with the premium (that is, the tax) paid being available to governments to create a fund for future financial sector bailouts," the academics said in a briefing note.

"If bank managers, owners, or creditors believe that they are insured against future failure due to excessive risk-taking, then they are more likely to undertake riskier behaviour. That would exacerbate the likelihood of a future financial crisis."

Further reading:

Banks face double tax whammy