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Italy approves 40% windfall tax on banks for 2023 as profits soar
- maxehmookau 3y agoMore of this please!
- brmgb 3y agoUnsurprisingly, highly regulated sectors like banking where entering is extremely hard display cartel like behaviors. There is no incentive coming from the competition so why would anyone lower the net interest margin. In this context, I think a windfall tax somehow makes sense. Then again, I'm pretty sure it's going to be misused by the government. I would much rather see regulation forcing banks to raise interest rate on deposits but well at least this goes somewhat in the right direction.
- nequo 3y ago> I would much rather see regulation forcing banks to raise interest rate on deposits Regulation that increases competition would be even better. It seems like that would be the underlying problem.
- johngladtj 3y agoRegulation is what prevents competition so...
- nequo 3y agoThat is fairly shortsighted. Regulation also prevents customers from being defrauded. Beyond that, antitrust action is regulation but it increases competition.
- l33t7332273 3y agoBut what does regulation that makes it easier to start a bank look like? It seems hard to do without reducing requirements for cash on hand which, which can be a disaster.
- gruez 3y ago> But what does regulation that makes it easier to start a bank look like? https://en.wikipedia.org/wiki/Narrow_banking https://en.wikipedia.org/wiki/Narrow_banking
- l33t7332273 3y agoI have to wonder how competitive these banks are. Without being able to invest in anything other than government bonds, they lose out on a lot of money that bigger banks get.
- brmgb 3y agoI am not sure myself. The past two decades have shown that banking is a sector which needs to be tightly regulated and bankers can never be trusted to not do utterly stupid things if there is even the slighest hint of profits. Honestly, I would be fine with the banking sector being nationalised at this point at least for the retail part. We are already bailing out banks when they fail so let's be coherent. It's entirely technologically possible for central banks to take over retail banking at this point and Brazil has demonstrated nicely that taking over payment processing would be a net improvement for everyone. Honestly, I don't understand why we haven't done it already but I suppose entranched interests are partly to blame.
- userabchn 3y agoI think the more coherent thing to do would be to treat banks like other industries and not bail them out. Customers would then place their money in safer banks, discouraging banks from engaging in risky behaviour.
- brmgb 3y agoSure, I'm convinced that no one is going to riot when they get their their lifetime savings casually wiped out. I bet on them fully understanding that they just made a terrible decision when they chose the wrong bank, it's entirely their fault and that it is what's best for the economy as a whole.
- imtringued 3y agoIf you think about running your own bank, guess what, the entire business model is inherently fragile. The payment services banks offer do not pay for themselves. People expect bank accounts with zero fees. This means that the payment infrastructure has to be cross subsidized from something unrelated to the payment infrastructure and that in turn means that the availability of the payment infrastructure is dependent on the actual cash cow of the bank. Lending to borrowers and diverting interest means your payment infrastructure is now tied to the creditworthiness of debtors. Even worse, what if the margins are so thin the bank does investment banking instead? Now your payment infrastructure is tied to the erratic stock market! The obvious solution is to stop the cross subsidy and start demanding that people pay for payment services separately. This doesn't guarantee proper and competent management. It merely makes it possible in the first place. Of course the problem is that various consumer protection agencies lobby for legislation that appears on its face to protect consumers but only by making the entire system less stable.
- bastardoperator 3y agoWhat kind of competition would you like to see in the banking sector? All banks look exactly the same from this vantage point...
- gretch 3y agoBanks compete on customer service, atm networks and fees, locations, app and technology infrastructure, among other things.
- all2 3y agoThe fractional reserve system and its associated fiat currencies will always drive "banking" as a service in the same direction: loans that become increasingly predatory. The root problem isn't the banks, per se, rather the problem is the underlying system that modern banks are incentivized by. Remove usury (loans at a profit) and base the national currency on something (anything is better than nothing, but the Socialists in Germany used production, and before the 1970s the US used gold) and I think you'd see that banks as a business would radically change.
- imtringued 3y agoThey wouldn't because you literally changed nothing. The USD is on a failed gold standard. We are still living the aftermath of a failed gold standard. Also, in theory a gold standard does absolutely nothing. All the theoretical benefits you think that come from a gold standard can be implemented today. The only difference is that a gold standard collapses when you go out of its modus operandi. The obvious problem is the concept that money from this period should be valid in any future period with no decay or costs associated with holding the money. This leads to a compression of the economy along the time dimension. It manipulates time preferences because money can be transported into the future at no cost which artificially subsidises low time preferences. The market no longer properly integrates the time preferences of all participants and this then leads to people who met their needs to assert their low time preference over people with unmet needs who by mere necessity, and not because of psychological or personal failure as many claim, have a higher time preference. A recession can be viewed as shifting production into the future even as people have unmet needs in the present. The only known solution is to get rid of cash or to introduce some sort of time bound money like demurrage currencies. A demurrage currency cannot be carried into the future at no cost. This binds the currency to a specific time period which in turn means that people with excess money can no longer impose their patience onto people who are impatient by circumstance.
- toomuchtodo 3y agoI trust governments more than banks and the people who run banks. More regulation is welcome, and occasionally, one off policy hacks are needed vs slowly tightening the regulatory regime (which gives banks time to adapt and avoid or evade; not good!). Move fast and regulate systemic systems.
- gruez 3y ago>Unsurprisingly, highly regulated sectors like banking where entering is extremely hard display cartel like behaviors. There is no incentive coming from the competition so why would anyone lower the net interest margin. In this context, I think a windfall tax somehow makes sense. Then I'm not sure what the banking market is like in Italy, but in the US it's trivially easy to find banks that pay close to or above fed daily funds rates[1]. Sure, your average main st or wall st bank might still be paying 0.1% interest, but there isn't exactly lack of competition either. [1] first result on google: https://www.bankrate.com/banking/savings/best-high-yield-interests-savings-accounts/ https://www.bankrate.com/banking/savings/best-high-yield-int...
- brmgb 3y ago> I'm not sure what the banking market is like in Italy Significantly less competitive than in the USA.
- gdsdfe 3y agoCanada need to do the same!
- hello_moto 3y agoCanada leaders are all cowards. All of them. They all sell promises of lowering costs for the people but every single policy that they created have always driven everything up. Grocery monopoly and corp profits. Housing "affordability" means "lowering requirements, giving tax break for first time buyer" ... It's not the kind of "Affordability for the people" that one expect.
- ricardobayes 3y agoCan we have energy companies next? Pocketing record profits during this situation is just disgusting.
- koolba 3y agoIf there are no windfall profits during boom times, are you equally onboard with subsidies during lean times? If the banks are doing something predatory then that behavior should be stopped. Not being able to define it and then seizing an arbitrary portion of the profits isn’t going to stop it in the future. Hell, since profit is after expense, they can increase CEO salaries to reduce it and be taxed less! Plus if the “crime” here is fleecing depositors with interest rate spreads, they should make them pay that arbitrary percentage to each depositor based on their pro rata share over the coarse of the year. Otherwise you’re taking some pensioners’ low savings account interest and giving it to away to someone else entirely.
- irongeek 3y agoHave banks not been bailed out?
- flavius29663 3y ago> are you equally onboard with subsidies during lean times? The problem is that these companies do receive subsidies during lean times, in both energy and banking fields, whether you want it or not. They are too important to be let to fail, and the governments will either subsidize them, bail them out or just plain nationalize them. In the case of Greece banking crisis, they nationalized the losses of foreign banks... So a windfall tax makes sense in these industries, maybe in others too.
- brmgb 3y agoAt this point, the EU has the worst of both a free market based economy and a planned one. Profits goes to corporate owners when they exist and losses are taken up by the general public through subsidies. It's very comfy for our corporate overlords and the old generation who could afford to become shareholders in these companies when public policies actually helped them but it's a raw deal for the rest of us. Sadly, old people are the one who still vote and put our governments in place so I don't expect things to ever get better. I guess it's doomed to happen when the median age of your country hits 45.
- sdfghswe 3y agoI dislike banks as much as anyone else. But does it bother anyone else to see rules changed around? Wouldn't it be a better approach to tell people/corporations how they're gonna be taxed?
- Obscurity4340 3y agoI mean, they kind of are. You might call it an ex post facto telling, but there you have it. I'd prefer everyone jumped on board and did it everywhere so there was no FAFO necessary.
- cykotic 3y agoIt does not bother me. But I think there should be a min/max for how much wealth a person has. No one suffers from taxing windfall profits. Windfall , by definition, being unexpectedly high profits.
- gruez 3y ago> No one suffers from taxing windfall profits. Windfall , by definition, being unexpectedly high profits. 1. This is objectively false. Shareholders of the bank suffer, because they get less profits. This may not be a crowd that solicits a lot of sympathy, but they still exist. 2. How do you feel about VCs and startups? Their entire business model is investing in 100 companies, knowing that 99 will fail but 1 will make astronomical returns. How would this work if there were windfall taxes?
- FirmwareBurner 3y ago>Shareholders of the bank suffer Won't someone think of the poor bank shareholders? /s
- gameman144 3y agoI mean, your parents and their 401k that holds all the money they're planning to retire on feels decently human and relatable to me.
- megaman821 3y agoWindfall taxes and bailouts aren't the policies that create a healthy banking sector. Instead they should worry about crafting better regulations and having competition for where people's savings go.
- femiagbabiaka 3y agoWhat would you say is an exemplar of a healthy banking sector?
- megaman821 3y agoA healthy sector would have banks with balance sheets large and diverse enough to smooth over small economic disruptions like a bad bank investments or increased customer withdraws, and banks would offer customer savings rates much closer to overnight lending rates.
- hello_moto 3y agoThis is a one-off tax if I read that correctly...
- scotty79 3y agoIdeally you make things more fireproof. But that's not an argument for not putting out things that are in flames at the moment.
- madballster 3y agoThis is an old European disease. Corporate profits are often seen as an adverse result; of consumers being taken advantage of unfairly. Taxing excess profits beyond what are already high tax rates is popular amongst voters (e.g. see poll results in the UK, 2022). However, this lowers the appeal for new entrants to enter these markets to compete for these excess profits through better and more efficient products and services. If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem".
- toyg 3y ago> see if competition takes care of the "problem". We have seen: for industries with big capital requirements or heavy regulatory frameworks (enacted for everyone's safety), it just doesn't.
- jntvjnvutnuvt 3y agoWhich industries with big capital requirements don't have competitors?
- Hamcha 3y agoIn the US: ISP & Healthcare
- jntvjnvutnuvt 3y agoMost Americans have access to AT&T, Verizon and T Mobile. They also have a choice of insurance plans and healthcare providers.
- MSFT_Edging 3y agoBut will their choice of health insurance provider be accepted at the hospital an ambulance took them to? Who knows but for that person, its time to play bankruptcy roulette.
- tensor 3y agoThis is a bit strange as presumably interest rates were raised in the first place to prevent inflation. Turning around and scolding the banks for doing what the government wanted in the first place seems counter productive. Wouldn't redistributing these profits back to mortgage holders just undermine the raising of interest rates in the first place?
- deleted 3y ago[deleted]
- gowld 3y agoSort of. Distributing the profits to bank shareholders doesn't help inflation. To curb inflation, the windfall (interest rate) taxes should be burned.
- sergiosgc 3y agoBanks aren't directly profiting from higher interest rates. They are profiting from arbitraging the change. They are increasing loan rates before their capital costs increase. They could easily do the same on a downward slope.
- t0mas88 3y agoThere is debate about whether high interest rates work to solve inflation at all. But if you believe they do, it makes sense to want the banks to also pass those rates on to savings accounts instead of only milking the mortgage market. Because that would theoretically cause consumers to save more instead of spending the money. But these high bank profits could indicate that the high rates have not been passed on to saving accounts. One issue in Europe is that there is no easy way for consumers to access the high interest rates with their available cash. While the US government has an online portal for consumers to buy state debt directly.
- scotty79 3y agoI'm not sure why people think higher interest rates reduce inflation by removing money from the economy. Main reason high interest rates reduce inflation is that they disincentivise taking new loans and each new loan take is new money printed. So higher interest rates is just putting breaks on money printing.
- deleted 3y ago[deleted]
- hello_moto 3y ago> If one wants free enterprise and reap its benefits one has to allow high profits for companies and see if competition takes care of the "problem". Max profits for BigCo (Bank, the rest, same) and lower the wages for the people seem to be the M.O. these days. I'd love to see higher Corp tax that is spread to people. Force higher tax and give tax break to force them spread their profit to their employers would be one example that is beneficial for everyone.
- AnimalMuppet 3y agoMeh, this is just going to lead banks to find ways to move profits into 2024. If they're serious, they should permanently raise the tax rate on high-earning banks.
- scotty79 3y agoWhy is personal income tax progressive but not corporate income tax? Of course progression needs to be based not only of the profits of a given corporation but also all of the subsidiaries down the chain of ownership.
- deleted 3y ago[deleted]
- acyou 3y agoDo we levy windfall taxes on farmers after a bumper crop harvest? No, because we assume the profits will be reinvested. How does a bank efficiently re-invest? Does taking profits mean efficient reinvestment? I dont think so. It just means inflation. Windfall taxes just grow the big government. More cost to be directly passed on to consumers at the end of the day. If we don't like capitalism, why not just say we want to ban usury and be done with it? For me, this line of thinking usually ends with: If you can't beat them, join them. As Adam Smith Founding Fathers, and people at the top everywhere would have hoped. Time to get off Hacker News and make my profits soar.
- scotty79 3y ago> How does a bank efficiently re-invest? Banks that have more money then they need for operation just indulge more in gambling.
- acyou 3y agoBanks gambling in the form of credit made available to other businesses would be ideal. That's what makes everything keep ticking along. What we should be concerned about is profit taking and thereby exchanging working assets and capital for idle cash on hand.
- scotty79 3y agoThey'd sooner invent few new classes of dervatives you can't loose on (on paper) and gamle with them than do what you suggest or anything in any way beneficial for that matter.
- hospitalJail 3y agoSay I own the index fund VT in my IRA. Does that mean Italy just took away some of my retirement? Shouldn't we be outraged?
- gmerc 3y agoNow do tech companies.