Robin Hood is back

With the G20 summit meeting happening this week in Toronto it seems like an appropriate time to talk about the proposal of a bank tax by major countries around the world. Much of the public perceives the bank tax as a great way to penalize banks and ensure that tax payers are not liable for the wrong doings of big banks again. What many people do not realize is that the bank tax has many drawbacks that country's should consider before immediately supporting the idea of constricting the banking industry. The fact that a insurance fund for potential bank problems is being set up might actually promote riskier banking behaviour because banks know they can take excessive risks and still have a fall back plan. Many banks might simply see that if you pay the tax, you are entitled to future bailouts. The bank tax also does nothing to fix the "too big to fail" metality, as smaller financial institutions will face huge taxes if they become bigger, resulting in fewer competitors for the Goldman Sachs, Morgan Stanleys, and Bank of Americas of the world. The bank tax is ultimately a punishment of financial institutions, but really the problem came more from a lack of regulation by government, which is supposed to be the corrective mechanism in the economy to smooth out potential problems. Lastly, banks do a particularly good job of directing costs away from them to the consumer, so be ready for higher banking costs if you are pushing for a bank tax. Do not jump to conclusions to quickly about a global bank tax without properly understanding its implications. This time robbing the rich to feed the poor does not work so well after all.