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April 25, 2010 10:32 pm
HSBC is seeking support for a plan to direct any industry-wide bank levy into government-sponsored venture capital agencies, as part of a rearguard mission to change the terms of the ongoing bank regulation debate.
The bank has toured Europe seeking support for its ideas that include varying the capital buffers that banks are required to hold, depending on economic conditions. It believes banks should hold higher capital cushions in good times to absorb losses when conditions decline.
The levy idea assumes the Group of 20 nations backs the plan, published by the International Monetary Fund last week, which set out the parameters for a global tax on bank balance sheets as a means to help buffer economies from financial crises.
A global levy, modelled on the so-called Obama levy proposed in the US this year, would be designed to provide upfront funding to guard against the risk of financial crisis. Few people believe a tax could be levied internationally but it could be orchestrated internationally, and levied at a national level.
There is little agreement on whether the money raised by a levy should be dedicated as bank bail-out funds, or should be redeployed by national governments into other areas.
The HSBC plan would inject equity into capital-starved small and medium businesses. That would remove a big obstacle to lending – banks only lend to businesses that can prove they have sufficient equity in place.
Critics say venture capital financing is not the business of government.
HSBC has lobbied regulators and peers to support the alternative notion of a “dynamic ratio” for capital buffers, one that should move up and down in line with countries’ economic fortunes, much like a central bank interest rate. The new European Systemic Risk Board, set up last year to track risk, could set the rate, HSBC argues.
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