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Regulators are rarely accused of being too candid. But Adair Turner’s observation that the financial sector is too large has seen the chairman of Britain’s Financial Services Authority swamped by a wave of protest.
Executives, lobby groups and even Boris Johnson, London’s Mayor, have responded with dire warnings about the risks of undermining the financial sector. This knee-jerk response shows the industry still fails to understand the consequences of the crisis it helped to cause. It is high time bankers engaged in a proper debate about their future.
The criticism of Turner takes two familiar forms. First, financial services businesses and their employees pay lots of tax. Second, tougher regulation could drive this valuable activity elsewhere. Both arguments have some limited merit. However, this narrow defence fails to address the broader question of the banking industry’s function, and its relationship with the state.
It is true that big banks have in the past paid a lot of tax, as have most of their employees. However, these historical receipts must be weighed against the trillions of dollars of public money that governments have been forced to commit to prop up their banking systems.
After the debacle of UBS’s American tax row, Berne can chalk up a small victory.
That deal effectively blows a hole in the country’s vaunted bank secrecy, whatever the official bluster. However, the government can be proud of being the first European government to sell the equity stake it took to support its banking sector during the crisis.