Anders Borg, the Swedish finance minister, has always been an outspoken critic of the excessive bonus culture that has been rampant in the banking industry. Now Mr Borg has urged the EU and the Group of 20 (G20) leading and emerging nations to clamp down on the high-risk, high-reward approach that triggered the global financial crisis.
He would like to see a "levy" imposed on the financial sector in a move to claw back the billions of euros, dollars and pounds that were pumped into the industry by governments in developed economies across the world. The US and Sweden already have plans to "tax" the sector and bring in new regulations. "This is something that has been introduced in the US and we already have a similar system in Sweden," Mr Borg said. "This is a tax, a fee that could bring substantial revenues for dealing with the public finance situation but also to take care of future banking crises."
Mr Borg believes a tax on final balance sheets, which is different to one on individual transactions as mooted since the 1970s, would avoid the problem of banks moving to more favourable locations. "You can't move your balance sheet out of the country so it's a much more logical model," he said. The Swedish government has already backed bonus reforms proposed at last year's G20 summit in Pittsburgh, which involve deferring payments for several years if the long-term results of investments turn sour.
"I think the bonus levels that we are now seeing is provocative," Mr Borg said. "It is surprising that the banks have not listened to the very, very clear message from the government, but also from the public. "The profits that they are now making are based on the fact that we made very, very extensive public support programmes for the banking sector, so it's provocative that they don't take the responsible line on this issue and we will have to look into - whether we need to do further measures."
Mr Borg hopes the next G20 meeting in the Canadian city of Toronto in June will produce a more detailed blueprint on tightening regulations in the financial sector, including his tax proposal. The Swedish model, introduced last year, comes in at 0.036 per cent of final balance sheets and is already equal to 1 per cent of GDP. "The advantages are obvious", compared with a transaction or turnover tax, Mr Borg said. "Smaller liabilities are encouraged as they incur a lower actual fee."
But his tax plan might be impossible to enforce in the EU. Jean-Claude Juncker, the head of the 16-country euro zone, has warned that it would be "difficult to adopt a common approach". "Tax matters are reserved for national decision-making across the EU," Mr Juncker said. Mr Borg's call for broader regulation, though, is gaining ground. Paul Volcker, the White House adviser, yesterday urged the US Congress to curb the risks taken by large banks to help prevent them from being treated as "too big to fail".
Detailing a recent proposal known as "the Volcker rule", the former Federal Reserve chairman told politicians that commercial banks' speculative activities should not be protected by the government. Mr Volcker will also seek international consensus on "appropriate" actions to restrict commercial banks' activities. "I am not so naive as to think that all potential conflicts can or should be expunged from banking or other businesses," he told Congress.
"But neither am I so naive as to think that, even with the best efforts of boards and management, so-called Chinese walls can remain impermeable against the pressures to seek maximum profit and personal remuneration." * with Dow Jones, Agence France-Presse and Reuters