Big banks 'should be taxed more to reflect risk'

Date: 14th September 2009

Larger banks should be subjected to higher levels of taxation than smaller financial services institutions due to the risk they pose to national economies, it has been argued.

According to a newly-published report from the Bank for International Settlements (BIS) cited by the Wall Street Journal, the level of risk posed by private banks tends to increase according to their size.

This situation should be reflected in governments' taxation policies, with any 'systemic changes' to the world's financial services sectors taking into account the heightened threat posed by larger banks, particularly in the current economic climate.

Drawing on an analysis of 20 major global banks, the report concluded: "The contribution of an institution to system-wide risk generally increases more than proportionately with its size.

"In other words, there is a clear rationale for having tighter prudential standards for larger institutions."

Meanwhile, the BIS has also warned that derivatives still pose a huge risk to the global economy, despite the fact that confidence among traders is on the rise.