Could or Should Robin Hood be Aiming for the Banks?

Bill Nighy stars in a short sketch about the "Robin Hood" tax - a 0.05% tax on a limited subset of banking transactions. The Robin Hood tax is not a new idea, and in 1972 James Tobin proposed something very similar. The Robin Hood tax message sounds simple: a minuscule tax on banking transactions aiming to produce an enormous tax revenue that could be spent on the public sector. However, reality is seldom quite so simplistic. Actions have unforeseen feedback effects. It's easy to sell a simplified message. It's much more difficult to create mechanisms that are effective, efficient and equitable.

Perhaps we should start by asking what is the Robin Hood tax trying to achieve? Then examine whether this tax is the correct mechanism to drive the behaviour we want, whilst remains alert to unintended consequences. A tax on bankers may sound an attractive proposition. After all, bankers - and MPs embroiled in the expenses gate scandal - are probably amongst the least popular people at the moment. But policy agenda should not be swayed by fads - we need to take a view that balances the short-term and the long-term.

The Robin Hood tax aims to curb excessive financial speculation and redistribute wealth. The first is a laudable aim. The second is a matter of political preference. You (and your conscience) can take your pick about where you sit on the spectrum of socialism to "non-redistributivism".
Taxes are blunt instruments. There are also other ways to bring stability to banks. They're less glamorous and perhaps less high profile than the Robin Hood tax. They certainly don't have such catchy names and are less well known to people outside of finance or economics. Capital Adequacy, solvency and maturity matching are all possible mechanisms that may drive the behaviour we want to see in our banks - but we need to make sure that the regulators have the teeth to enforce them.

As for unintended consequences? Businesses need effective and efficient financial markets to raise capital funds for growth and to hedge against risks. I suspect that bankers and businesses will raise their prices to compensate for costs that are created by the Robin Hood tax. Therefore price increases will work their way back to us, the customer. A stable banking sector that offers reasonably priced services is something I suspect we are all hoping for. But would the less glamorous approaches (capital adequacy, etc) be a better way to achieve our ambitions than Robin Hood?