Could a rise in bank taxes in the upcoming Autumn Budget spark a stock market crash? I don’t know. But I do know I’m cautious about the most exposed part of the UK market right now.

Lloyds and NatWest fell more than 2% after reports that Chancellor John Healey may raise bank taxes on 28 October. The reported change is an increase in the bank surcharge from 3% to 8%.

Clearly, that’ll have financial consequences – but are all banks equally exposed?

Why UK banks look vulnerable

The policy risk is straightforward: a higher bank surcharge would directly reduce the UK profits lenders can keep after tax. For banks with large domestic loan books and UK-focused earnings, that could hit profits and dividends.

There’s also a regulatory overhang. Barclays has reportedly been probed by the Bank of England over claims traders understated exposure to risky private-credit loans. That knocked its shares, falling 3.5% to 417.5p.

AJ Bell’s Russ Mould has also highlighted wider pressures: private-credit exposure, AI-related lending, higher rates and the risk of loan provisions. That’s a lot of risk for a sector near the top of a multi-year rally.

Why HSBC may move differently

In light of all this, some UK retail investors may be wondering if there’s a way to keep banking exposure without taking the full force of a UK tax change.

HSBC (LSE:HSBA) could be one option. It earns much of its profit overseas, particularly in Asia, and has a large international corporate and institutional business.

When tax fears hit, Lloyds fell 1.8% and NatWest by 1.51%, while HSBC rose 1.2% and Standard Chartered lifted 0.71%.

That divergence matters. Reports indicate that any new tax would likely target domestic bank profits, with less impact on the UK operations of international lenders. If that’s the final design, HSBC’s overseas earnings could provide some protection.

Still, that doesn’t make it immune. In addition to its domestic operations, it also faces global market risk and exposure to China and Hong Kong. A global slowdown, weaker Asia demand, geopolitical tension or a broad banking selloff could all impact it.

Diversified operations may add a UK policy buffer, but bring about risks of their own to consider. Banks are also retreating in the US and Europe, so UK tax fears are only part of the story.

The point isn’t that HSBC will necessarily rise while Lloyds falls. It’s that HSBC has more sources of earnings and may be less dependent on one UK Budget decision.

What to watch next

This isn’t a call to abandon banks altogether. It’s a call to be selective. For investors seeking banking exposure now, HSBC looks like the safer option to consider.

Key signals include:

• The 28 October Budget and the final design of any bank-surcharge increase.
• HSBC’s third-quarter results, due on 27 October.
• Loan growth, deposit trends and any signs of higher credit provisions.
• Any change to the dividend, which matters most for income investors.

As an income investor, I’ll be watching dividend changes closely. If HSBC maintains its payout while UK-focused rivals face a heavier tax bill, that could be the clearest sign the market’s got the distinction right.

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Mark Hartley owns shares in Lloyds Banking Group and HSBC.