Canadian CEOs Oppose Bank Tax

www.bethelfinance.com/rm

The Canadian business community has backed the Harper government’s opposition to the special bank tax being proposed by the Obama administration in concert with Japan and some European countries.

In an Internet survey of CEOs and business leaders, undertaken for Canadian Business by COMPAS, respondents concurred with the government’s rejection of a banking tax, with 82% of participants in favour of Flaherty’s proposal for the banks to sell debt that would convert to equity in the event of a crisis.

The survey found that the key reason to oppose the tax is that Canada’s banking system is well run. In the respondents’ view, creating a fund from the special tax to be available for future bailouts could also create what economists call the “moral hazard” of encouraging financial institutions to engage in needless risks.

Canadian bank CEOs also opposed the tax. In their opposition to the tax, bank leaders identified three key factors in causing the financial crisis: the lack of common, accurate standards for measuring the risk associated with complex financial instruments, such as the mortgage investments that were at the centre of the collapse; the fact that banks held low capital reserves; and mediocre skills among risk managers.

Canada’s Finance Minister has definitively ruled out the Canadian application of a global banking tax, stating in late April that bespoke policy responses would be more effective in preventing future banking crises.

In a letter to his G20 counterparts, Flaherty warned against adopting a one-size-fits-all approach, stating that individual policy responses should be geared towards the needs of each country’s financial sector, and he stressed that the Canadian experience of the banking crisis was quite dissimilar to many other economies.

"While some countries may choose to pursue an ex ante systemic risk levy or a tax, I do not believe that this would be an appropriate tool for all countries," Flaherty’s letter stated.

Canada’s unique mortgage market, Flaherty noted at the time, has withstood the financial crisis better than most advanced economies, as its exposure to sub-prime mortgages has been comparatively low, while the US the UK financial markets had high exposure to such investments. It has further been noted that the Canadian mortgage system is state-assured and therefore considerably less risky than other countries’ systems. Flaherty said the Canadian financial industry should not be disadvantaged with the same regulation as is being proposed for other countries where risk levels have been higher.