By Rebecca Christie
Jan. 21 (Bloomberg) -- Investors say Congress would undermine the U.S. economy by clamping down on the Federal Reserve and predict that taxes on bank bonuses would persuade companies to move to friendlier jurisdictions.
More than half the respondents in a quarterly poll of investors and analysts who are Bloomberg subscribers said that increased congressional oversight would open the U.S. central bank to political influence and hurt the Fed’s ability to conduct monetary policy.
The House of Representatives has approved a proposal to submit the Fed to monetary policy audits, while the Senate is considering legislation that would remove the Fed’s authority to supervise banks.
“God forbid further political meddling with one of the few institutions that functioned during the crisis,” said poll respondent Giovanni Conti, a treasury officer for the International Fund for Agricultural Development, a United Nations agency based in Rome. “This crisis has proven the need of a central control over both monetary policy and monitoring of the structure of the financial system.”
Investors were critical of new financial industry taxes and regulations. By more than 2 to 1, poll respondents said taxes on bankers’ bonuses, like those imposed in the U.K. and France and being considered in the U.S., would compel at least some companies to move from those countries.
Likewise, investors say President Barack Obama’s plan for new fees on big banks, to cover as much as $117 billion in losses from the Troubled Asset Relief Program, is a bad idea. More than half of investors worldwide opposed such a plan, including more than three-quarters of U.S. respondents.
Customers Bear Costs
“Rather simple blanket fees on banks will do nothing to deter the excesses of risk or compensation on Wall Street, and such costs will most likely be passed onto customers through higher lending rates,” said Masahide Hoshi, a director at Phalanx Capital Management HK Ltd. in Hong Kong. “This is clearly a politically motivated proposal prior to the midterm congressional elections.”
There was a pronounced regional division of opinion about Obama’s fee proposal. Only 18 percent of U.S. respondents favored the plan, which was supported by clear majorities in Europe and Asia.
Almost half the investors surveyed said that limits on executive compensation would discourage useful innovation, while 40 percent said restrictions may do more to control excessive risk-taking.
Bonus Taxes
About four out of 10 investors said their country’s tax on bonuses was “about right,” while 46 percent said it was too high. According to the poll results, 20 percent of respondents got no bonus in 2009; 39 percent received a bonus that was neither the highest nor lowest they’ve ever received.
Investors were split on the best way to prevent future taxpayer bailouts. About 42 percent cited stricter regulation of large banks, an approach that was most popular in Europe and Asia.
Almost one-third of global investors said governments should allow big banks to fail, an option preferred by 43 percent of U.S. respondents and only about one-quarter of those in other countries. In the U.S. and Europe, about one in four investors said governments should break up big banks, a view shared by only 14 percent of investors in Asia.
At the same time, 58 percent of U.S. respondents and 64 percent in Europe said it had been a good idea for governments to intervene with aid for big banks and investment firms. Respondents in Asia were divided on the value of bailouts.
Central Banks
As Congress debates the role of the Fed, the U.S. should learn from the experience of other countries before charging ahead with changes to its central bank, said John Greene, a pricing specialist at Pioneer Investment Management Ltd. in Dublin.
“In Ireland, the political influence on the Central Bank of Ireland has contributed significantly to the decline in our economy,” Greene said. “A similar situation in the U.S. could easily happen. I think it would lead to a dangerous shift of economic control and power, which could lead to a long term weakening of the U.S. economy.”
The quarterly Bloomberg Global Poll of investors and analysts on six continents was conducted on Jan. 19. It is based on interviews with a random sample of 873 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3.3 percentage points.
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