An IMF working paper has examined the "implicit subsidy" which large banks enjoy because they are "too big to fail". The proposition does not relate to direct bail out: but rather to the reduction in the cost of borrowing which arises from lenders confidence that those banks
will be bailed out if necessary.
You will recall that some banks, notably Barclays, did not get a direct bail out and they held this out as an indication that they were well run etc. That claim has been demolished by the Qatari connection and the Libor fixing which have since emerged: but this paper stands even if such covert actions had not existed. It has long been recognised that banks which were not directly bailed out still enjoyed a benefit from those bail outs in the form of more stable markets and increased confidence that they would not fail. That has normally been confined to a short term effect at the time of the crash. These authors differ. What they are saying is that
all the big banks get an effective subsidy
all the time.
The authors conclude that there should be a levy on bank profit because of that privilege, and that this should be in the form of tax to extract the value of what is, in effect, a public sector subsidy. That might go some way to offset the damage to confidence in the sovereign debt if you happen to think that is real in any way: and for practical purposes it is, since governments choose to believe it is.
There is some uncertainty about how to measure the amount that should be levied but one figure proposed is 0.8%. Bloomberg has put some numbers on that for America, only: and they consider that it amounts to $83 billion a year: which is not to be sniffed at if government debt and deficit bother you.
Bloomberg also notes that such a levy would wipe out the profit of the top 5 banks. If that is true (and they have figures to support it) it implies that these banks make no profit at all from the control and management of $9 trillion dollars worth of assets etc. I find that hard to believe, but it rather depends on what is counted as profit and that in turn depends on how much tax they want to pay. On the face of it they must be the most incompetent people on the planet. You may have already come to that conclusion, however.
http://www.bloomberg.com/news/2013-02-20/w...on-a-year-.html
