Q&A: BANK LEVY KEY POINTS
Q.WHY IS THE NEW BANK LEVY DEEMED NECESSARY?
A.After the government was forced to use taxpayers’ money to bail out institutions that were crippled during the financial crisis, policymakers insisted a levy on banks’ balance sheets should be introduced as a safeguard against future problems in the industry. The government wants to raise £2.5bn a year as part of a joint move with France and Germany, starting on 1 January 2011.
Q.WHAT WILL BE THE RATE OF THE BANK LEVY IF IMPLEMENTED?
A.The government will first introduce a 0.04 per cent levy on balance sheets in 2011, rising to 0.07 per cent in 2012. There will also be a reduced rate for longer-maturity funding intially set at 0.02 per cent and rising to 0.035 per cent.
Q.WHICH BANKS AND FINANCIAL INSTITUTIONS WILL BE AFFECTED?
A.The levy will apply to three areas of banking and only to entities which have relevant liabilities of £20bn or more: 1) Global consolidated balance sheets of UK banking groups and building societies. 2) Aggregated subisidiary and branch balance sheets of foreign banks operating in the UK. 3) Balance sheets of UK banks in non-banking groups.
Q.WHAT WILL BE EXCLUDED FROM THE PLANS?
A.Smaller institutions will not be hit and the levy will not apply to Tier 1 capital, insured retail deposits, repos secured on sovereign debt and policyholders’ liabilities of retail insurance businesses within banks.