Newsletter May 2013: Europe’s financial tax will destroy collateral market

LONDON – The financial transaction tax (FTT) that eleven EU countries plan to introduce, possibly as soon as next year, will “extinguish” much of Europe’s market for collateral, which underpins the security of individual financial transactions and counterparties and thereby the stability of the financial system. Given this systemic role of collateral, such an outcome should be a matter of the greatest concern for regulators, central banks, financial intermediaries, and investors and borrowers, including governments, according to an academic paper circulated in early May.