skippy the bush kangaroo: Financial Crisis Responsibility Fee

Thursday, January 14, 2010

Financial Crisis Responsibility Fee

It has been a busy week on the financial front. The Financial Crisis Inquiry Commission kicked off, paving the way for "a frisky exchange" between Goldman Sachs' Lloyd Blankfein and FCIC chair Phil Angelides. The FDIC announced their considerations of raising fees for banks that continue to operate in risky ways.

But the largest news story will be President Obama's announcement today concerning a potential big bank tax that would earn back the TARP money. Felix Salmon interprets the data:

...essentially, it’s a 0.15% tax on bank liabilities excluding deposits (which already come with an FDIC fee attached). It would be paid by roughly 50 firms, including GE Capital, and would raise something on the order of $90 billion over 10 years. That’s an average of $180 million per firm per year, which seems eminently affordable to me.
US subsidiaries of foreign banks like HSBC and Deutsche Bank will be taxed; it’s unclear whether foreign subsidiaries of US banks will be as well. The aim of the tax is to ensure that the entire TARP fund gets repaid in full — not just the money lent to the banks directly, but also the money lent to the banks indirectly, through the AIG bailout. The tax is not, however, designed to repay the cost of rescuing Fannie and Freddie.

I like the way the tax is structured: it’s simple, and the liabilities-minus-deposits formula naturally puts more of the onus on investment banks than commercial banks. It also encourages banks to fund themselves with equity rather than debt.

The tax, formally called the "financial crisis responsibility fee", will be in the budget that goes to Congress next month. That's plenty of time for Blankfein and JPMorgan's Jamie Dimon to get their whine on.

posted by Brandy Betz at 7:29 AM |

3 Comments:

good but not enough

commented by

moderate, 9:09 AM PST

I'll bet $90 Billion dollars this "fee" does not get repealed after the TARP funds are repaid.

commented by

Anonymous, 9:36 AM PST

I like the approach of forcing the greedy bankers to pay the tax out of the bonus programs ...The greedy bankers took the risks screwed up the system and caused the resession. They shoul then pay for their mistakes.

commented by

Anonymous, 3:40 PM PST

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