Italy approves 40% windfall tax on banks for 2023 as profits soar
theguardian.com
theguardian.com
Regulation that increases competition would be even better. It seems like that would be the underlying problem.
It seems hard to do without reducing requirements for cash on hand which, which can be a disaster.
It's entirely technologically possible for central banks to take over retail banking at this point and Brazil has demonstrated nicely that taking over payment processing would be a net improvement for everyone. Honestly, I don't understand why we haven't done it already but I suppose entranched interests are partly to blame.
Lending to borrowers and diverting interest means your payment infrastructure is now tied to the creditworthiness of debtors. Even worse, what if the margins are so thin the bank does investment banking instead? Now your payment infrastructure is tied to the erratic stock market!
The obvious solution is to stop the cross subsidy and start demanding that people pay for payment services separately. This doesn't guarantee proper and competent management. It merely makes it possible in the first place. Of course the problem is that various consumer protection agencies lobby for legislation that appears on its face to protect consumers but only by making the entire system less stable.
The root problem isn't the banks, per se, rather the problem is the underlying system that modern banks are incentivized by.
Remove usury (loans at a profit) and base the national currency on something (anything is better than nothing, but the Socialists in Germany used production, and before the 1970s the US used gold) and I think you'd see that banks as a business would radically change.
The obvious problem is the concept that money from this period should be valid in any future period with no decay or costs associated with holding the money. This leads to a compression of the economy along the time dimension. It manipulates time preferences because money can be transported into the future at no cost which artificially subsidises low time preferences. The market no longer properly integrates the time preferences of all participants and this then leads to people who met their needs to assert their low time preference over people with unmet needs who by mere necessity, and not because of psychological or personal failure as many claim, have a higher time preference. A recession can be viewed as shifting production into the future even as people have unmet needs in the present.
The only known solution is to get rid of cash or to introduce some sort of time bound money like demurrage currencies. A demurrage currency cannot be carried into the future at no cost. This binds the currency to a specific time period which in turn means that people with excess money can no longer impose their patience onto people who are impatient by circumstance.
The gold standard was removed in the 1970s. There has been no value behind the dollar since then. During the same time, the US Gov't actually seized citizen's gold.
> The obvious problem is the concept that money from this period should be valid in any future period with no decay or costs associated with holding the money.
This statement is confusing to me. Are you saying that there is not time-cost to the holder of cash if that cash is backed by gold? That is, if I have 100USD (gold backed) there is no downside to holding that cash as opposed to spending it?
> The only known solution is to get rid of cash or to introduce some sort of time bound money like demurrage currencies.
You may like the idea of CBDCs, then. With a centrally controlled digital currency it would be possible to put expiration dates on cash in order to force people to spend their money. Hyper-inflation has the same affect, though. If you look at the Argentine economy and how people spend money with 40-200% inflation year-over-year, you'll see that no one holds onto their cash. They all spend their cash in a very short period of time. People convert the currency that cannot store value into things that can; things like goods, US dollars, crypto currencies, etc.
[edit for spelling]
The fractional reserve system does not exist:
> Fractional reserve banking is the idea that banks take their reserves and lend them into some fraction based on the quantity of reserves they hold. This idea has been largely debunked since the financial crisis. In reality, banks do not lend their reserves, except to one another inside of the reserve system (which is a closed system, ie, reserves don’t even leave the system). They don’t even lend based on the quantity of reserves they hold.
* https://www.pragcap.com/what-is-fractional-reserve-banking/
* https://www.pragcap.com/r-i-p-the-money-multiplier/
* https://research.stlouisfed.org/publications/page1-econ/2021...
Some countries don't even have reserver requirements:
* https://en.wikipedia.org/wiki/Reserve_requirement#Countries_...
Tobin called the relending of deposits the "Old View" in 1963:
* https://ideas.repec.org/p/cwl/cwldpp/159.html
> Remove usury (loans at a profit) and base the national currency on something […]
There was more instability in the US under the gold standard than in the recent (7+) decades under fiat:
* https://www.theatlantic.com/business/archive/2012/08/why-the...
And if you think fiat encourages financial speculation, and the gold standard reduces it:
I'm not sure what the banking market is like in Italy, but in the US it's trivially easy to find banks that pay close to or above fed daily funds rates[1]. Sure, your average main st or wall st bank might still be paying 0.1% interest, but there isn't exactly lack of competition either.
[1] first result on google: https://www.bankrate.com/banking/savings/best-high-yield-int...
Significantly less competitive than in the USA.
We have seen: for industries with big capital requirements or heavy regulatory frameworks (enacted for everyone's safety), it just doesn't.
Utilities (water, electric, telephony/cable/data services) or where having two of something makes no sense given physical limitations (Transportation sector, etc.)
What a wild system you have.
These are mobile providers. For home internet with a physical connection you usually don't have a choice and it is not outlandish to consider them a "natural monopoly" like you would electricity and water.
After all, if you're Time Warner, you could compete with Verizon by improving your infrastructure or lowering your prices, but that would spur them on to do the same thing, and then it's a race to the bottom where "everybody loses" (by which I mean consumers win a bit more and corporations win a bit less).
If you instead take the gentleman's agreement to not make any substantial changes, then you both get to gouge customers for poor service as much as you want, keeping profits high without having to do any work to maintain it. Sure, you might lose some customers to your competitor, but they also lose customers to you and everyone is happy (except the customers).
I can buy a script to build a Facebook clone from an Indian Dev for like $50.
The article reports the effort as a "surprise tax".
The point is that a windfall is also - by definition - a favourable change in the rules after the game has started.
The moral question here should be a simple one. Did the investors in the banks know (or at least reasonably expect) that they would make these profits when they decided to make their investment? If they didn't and they invested anyway then there's a reasonable argument for a windfall tax as long as it only claws back gains they had no reasonable expectation of making and did nothing useful to earn.
Frankly I think taxing some part of revenue instead of just income on big companies would be beneficial, no more "investing" in making market harder to newcomers (or outright buying them out) and getting tax cut on that.
Canada on the other hand had branch banking, meaning a few insitution each covering the whole country. So Canada had very far fewer banks historically.
During the Great Depression many 1000$ of banks failed in the US and none in Canada.
The USA has one bank for every 70617 people.
The EU has one bank for every 86637 people.
Italy is rather much more concentrated, having seen a huge decrease in unique banks over the last decade. It has one bank for every 134624 people.
I agree that the number of people is a better characteristic in this context, however the number of countries is important. EU has many different cultures, languages, regulations, so they have to have more banks. But looking at data, despite these considerations, EU still has worse competition. So still not sure what exactly parent meant.
Can you imagine if the number of banks per country was constant?
On the bank metric: There are plenty of quasi non functional FDIC insured banks that are used as vehicles for reverse takeovers to allow a market entrant to avoid the hassle of obtaining their licenses.
Additionally given the substantially increased variability within different European markets we'd expect significantly different competitive dimensions between regional and international tier banks.
Companies are just groups of people. Why should a group of 100 people get taxed more than a group of 100,000 people? Progressive rates on wages make sense because it's applied to each person individually.
The legal definition is certainly not "groups of people." Describing them in this folksy way is outright misleading.
It would be the other way around. This is in order to encourage the formation of new groups, which almost always start out small.
If that's your goal, having slightly lower taxes is a terrible way of doing so. It's far better to address the barriers to business formation directly (eg. availability of capital, market power of incumbents, regulatory requirements). We want people to found new companies to produce a better product (eg. Tesla), not to chase some tax incentive.
Or tax on revenue once company becomes big enough. Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.
That would cover most professional services firms (eg. lawyers/accountants). I don't really see why they should be considered worse than a mcdonalds.
>Taxing on income made sense to make investing into expansion a good thing, but those companies clearly don't need to be bigger, it seems to just make stuff worse and worse.
TSMC brings in 73.67 billion/year in revenue. Equifax only brings in 5.12 billion/year. Which one is making stuff "worse and worse"? Surely there's a better metric than dollar amounts, which totally ignore the financial nature of the underlying industry?
In some businesses there is also a benefit in scale (like in trading), and there you see the US banks leading because they've had it.
If you want the US banks to fully take over IB and corporate banking, definitely do tax the EU banks painfully more.
Or tax every financial counterpart painfully more, so then eventually the customers pay much more for their loans because the financial system has become so expensive.
The world of money existed before banks, it will exist after.
In short, due to international capital sufficiency regulations, there's now a market for excess regulatory capital. The attempt to prune low performing assets is due to a market as an alternative to low return on capital investments.
It's not because of charges and overhead.
Banks aren't worried about bad assets more than usual, they just have another arena to make money in now.
And then the incentives are all wrong if you bail your buddies out anyway. Play with fire and the fed will bail you out is terrible.
If we pass these windfall taxes and then use that money to help individuals who are struggling, those individuals then benefit; however, if we let all that money to go to the millionaire/billionaire shareholders, then there's a chance that, instead of adding it to the excess wealth they're already hoarding, they might decide to spend it on business or projects that they could already have afforded but didn't. Those businesses or projects could then theoretically create work opportunities which would then employ some more people, and maybe some of those people would be the people who are struggling, and maybe the pay would be a bit better than the market rate they're already getting paid for their labor for some reason and so they'd get paid a bit more, and maybe that would help them to struggle less. Didn't you ever think of that?!
> If one wants free enterprise and reap its benefits
who wants this from banking???
> one has to allow high profits for companies and see if competition takes care of the "problem"
ah, yes - we've seen this work so many times before!
You get that through competition for my deposits.
This is pretty uncontroversial basic economics...
If you're a healthcare provider in the US you often have to get a "certificate of need" to offer a service where a board full of competitors in the neighborhood determine if the neighborhood really "needs" this service:
> CON programs primarily aim to control health care costs by restricting duplicative services and determining whether new capital expenditures meet a community need.
Competition did nothing to stop industry alignment against consumer interests.
It's wild to imagine complaining about them being taxed but few complained about bails out from tax payers.
I'm sure there were a lot of complaints...
I certainly do. I like have lots of choices and banking is important to me. I also like innovative new banking products. I wish there was free enterprise in banking, it seems like we have an oligopoly, in the US at least.
1. Investors invest for speculative returns, not predictability or risk minimisation.
2. Free enterprise is possible within existing political-economic frameworks.
Banks will do just the same that all megacorps do: buy up their competitors with all the excess profit to make even more profit.
1- Windfall tax 2- Elimination of banking license regulations
What do you think would be their choice?
They would choose (3) "pay money to lobby for none of the above" and instead lobby congressmen/deputies, to eliminate this question
I sometimes wonder if perhaps other parts of the world have a different vision of how to run their economy. Surely "free enterprise" isn't a universal rule and certainly not the way it is conducted in North America. Maybe they're just doing things differently?
One must just glance at the US to see what happens, the high profits get used to lobby politicians to make competition impossible, thus the problem doesn't get solved and becomes the status quo.
You could think this is good as it supports people but I think it's kind of sad thousands of people get up and go to work every day with no impact on anything,just waste away at a desk. This doesn't even mention the economic waste
GP's point may not be obvious on the surface, but another way to look at it is, if for example the economy cools down and GOOG is pressured to maintain its profits, you can bet that management will decide to lay off even more people. In this sense it is just behaving as if it earns as much money as "expected" (by shareholders or the public, doesn't matter).
So, basically, result of a status competition that comes from misalignment between the interests of the company and the interests of individual managers.
But when times are tough you start making riskier jobs because you just don’t have the funds to support bullshit jobs.
What is it then?
I think it's a clear sign that competition doesn't work and savings were not passed to consumers. The thesis that competition will work eventually reeks of trickle down economics.
Such tax is just punishment for the lack of competition. It sends a message that if you are not going to compete for the customer then you can't keep the profits gained from your reluctance to compete.
The competition only works if competitors are willing to give consumer a better deal, and if moving between competitors is easy enough.
But if they decide "well, media say there is inflation so we have excuses to rise prices far higher than actual rise of costs", well...
Also, I’m in Europe and my bank gives me better deals on savings than any American bank offers.
That is, after all, how interest rates work. We 'tax' the mortgage payers and give it to deposit holders to hold as a store of value. That reduces the transaction rate.
So if we tax corporate profits and redistribute it around, then interest rates have to go higher to force the money released from the corporate profit store, to the deposit holder store.
If prices are too high, the solution is to encourage the capitalisation of more competition, not encourage keeping money in the bank.
Permanent high taxes are better than unpredictable windfall taxes.
It's very difficult to budget for the future when you don't know how much tax you're paying by a binary order of magnitude. When industry specific, it can create perverse incentives for outsourcing.
And how many de novo banks have there actually been in any country recently? In the US, the land of plenty (banks), there's been one in the last twenty years.
Bloomberg's Odd Lots podcast just had an episode on this (including the topic of de novo):
* https://www.youtube.com/watch?v=8lPFHWgxq5c
Banking is low margin, and it takes decades to get any kind of return: few, if any folks, have the patience for that kind of ROI when there are alternatives.
Wouldn't redistributing these profits back to mortgage holders just undermine the raising of interest rates in the first place?
To curb inflation, the windfall (interest rate) taxes should be burned.
But these high bank profits could indicate that the high rates have not been passed on to saving accounts.
One issue in Europe is that there is no easy way for consumers to access the high interest rates with their available cash. While the US government has an online portal for consumers to buy state debt directly.
Main reason high interest rates reduce inflation is that they disincentivise taking new loans and each new loan take is new money printed. So higher interest rates is just putting breaks on money printing.
Money is a stock. It's the flow of transactions that matter for inflation, and that just increases - as we see from increased credit card lending, and increased trade credit in business (which is the commercial equivalent).
Higher rates just means higher prices, which then leads into higher wage demands.
There is no control until the money becomes 'dead' - saved by people who already have money.
Which funnily enough the banks were doing before they got taxed...
If the banks are doing something predatory then that behavior should be stopped. Not being able to define it and then seizing an arbitrary portion of the profits isn’t going to stop it in the future. Hell, since profit is after expense, they can increase CEO salaries to reduce it and be taxed less!
Plus if the “crime” here is fleecing depositors with interest rate spreads, they should make them pay that arbitrary percentage to each depositor based on their pro rata share over the coarse of the year.
Otherwise you’re taking some pensioners’ low savings account interest and giving it to away to someone else entirely.
The problem is that these companies do receive subsidies during lean times, in both energy and banking fields, whether you want it or not. They are too important to be let to fail, and the governments will either subsidize them, bail them out or just plain nationalize them. In the case of Greece banking crisis, they nationalized the losses of foreign banks...
So a windfall tax makes sense in these industries, maybe in others too.
Utilities are similarly bailed out, because what are you going to do, leave people without water and electricity?
If we have risk floors, we should also have profit ceilings.
Be surprised, then. European regulators typically influence consumer prices, one way or the other, but profits are not capped.
[1]: https://wgme.com/news/local/are-private-or-public-electric-u...
Max profits for BigCo (Bank, the rest, same) and lower the wages for the people seem to be the M.O. these days.
I'd love to see higher Corp tax that is spread to people. Force higher tax and give tax break to force them spread their profit to their employers would be one example that is beneficial for everyone.
Of course progression needs to be based not only of the profits of a given corporation but also all of the subsidiaries down the chain of ownership.
Does that mean Italy just took away some of my retirement? Shouldn't we be outraged?
1. This is objectively false. Shareholders of the bank suffer, because they get less profits. This may not be a crowd that solicits a lot of sympathy, but they still exist.
2. How do you feel about VCs and startups? Their entire business model is investing in 100 companies, knowing that 99 will fail but 1 will make astronomical returns. How would this work if there were windfall taxes?
Won't someone think of the poor bank shareholders? /s
"Go ahead BP and VW, keep polluting the world, we're not gonna touch you because we don't want your shares to go down and in turn the retirement funds of those tied to you."
Am I the one seeing the slippery slope here, or am I being crazy?
Nobody claims this. My initial comment was only pointing out that the claim that nobody will be harmed by the windfall tax was false.
In America anyway, the wealthiest 1% own 53% of the stock market. I highly doubt that the "your parents" would benefit more from funding of their investment accounts than they would benefit from the tax revenue generated. Of course my assumption is highly dependent on public policy.
>This may not be a crowd that solicits a lot of sympathy, but they still exist.
I'm not defending anyones point here but pointing out that you haven't quite grasped how the economy works or alternatively you like snarky little value add comments.
And about half of those stocks are held by the top 1%.
the same way it works now: counterbalance losses with gains.
To call it a loss means that money was taken from them. If someone promises to leave me $1 million when they die and then they decide to change their mind I do not suffer. Nothing was taken from me. I did miss out on having $1 million but have suffered no loss. I never had the $1 million to begin with.
1. You haven't heard of the saying "suffering a loss" in the context of finance?
2. see definition 3: https://en.wiktionary.org/wiki/suffer#Verb
> Those entities don't lose anything. It's not possible to lose something you don't have. In an alternate universe where the windfall tax did not occur those entities have more money. But in this universe they don't lose anything. They don't suffer.
That's a strange way of putting it. Suppose you were at the casino and won a few thousand dollars. When you decide to cash out they informed you there was a "winnings surcharge" (that they didn't previously tell you about) and took 50% of your winnings. Would you say that you didn't "lose anything"?
We live in a society and there aren winners/losers in a financial sense. But we all have to live together. That 10 people have as much wealth as 150 million people is obscene and immoral. Taxing such wealth to use for the betterment of us all is right, just, and sound policy. Obviously we disagree on this. I hope your view does not win out in the long run. It has won out in the U.S. in the present and the effects have been bad. Such is my view.
That sounds like zero-sum thinking.
I believe that if you think of the world using zero-sum thinking (that winners are balanced by losers), you will end up with a very skewed view.
Just because it's called a windfall tax does not mean it only effects windfalls. This is really just a "surprise extra tax". Plenty of people said that rising interest rates would mean more risk but also more profit for banks. Now they have taken the risk they're being told the profit is not theirs...
Surprise laws should bother you on general principles.
Tax unpredictability, high taxes, or capping profitability is a great way to scare off businesses from operating in your jurisdiction.
Windfall taxes don't bother me.
Pensions don’t take a penalty. A penalty implies something being taken away from them or a charge to them. Nothing is being taken away from the pension.
No, because we assume the profits will be reinvested.
How does a bank efficiently re-invest? Does taking profits mean efficient reinvestment? I dont think so. It just means inflation.
Windfall taxes just grow the big government. More cost to be directly passed on to consumers at the end of the day.
If we don't like capitalism, why not just say we want to ban usury and be done with it?
For me, this line of thinking usually ends with: If you can't beat them, join them. As Adam Smith Founding Fathers, and people at the top everywhere would have hoped. Time to get off Hacker News and make my profits soar.
Banks that have more money then they need for operation just indulge more in gambling.
Grocery monopoly and corp profits.
Housing "affordability" means "lowering requirements, giving tax break for first time buyer" ...
It's not the kind of "Affordability for the people" that one expect.