–Bank Tax Is ‘Responsible Fiscal Policy’

By Brai Odion-Esene and Ian McKendry

WASHINGTON (MNI) – U.S. Treasury Secretary Timothy Geithner told
lawmakers Tuesday that the bank fee proposed by the administration is
part of its broad strategy to limit excessive risk taking by banks,
while defending the levy as “responsible fiscal policy.”

He said proposing a fee “that is in a sense a tax on leverage or a
tax on risk” would reinforce the government’s broad objective to reduce
risk in the financial system going forward.

Taking questions from the Senate Finance Committee during a hearing
on the Crisis Responsibility Fee, Geithner told the panel the bank tax
has additional benefit “of falling on those that take most risk.” Its
primary purpose is to meet legal obligation that banks’ cover
the direct costs of the Troubled Asset Relief Program.

The levy imposed on the bank will match the level of risks it
takes, he said, warning that if a banks continues to take on more risks,
its proportion of the bank fee would be higher.

The framework for the bank fee will be adapted by regulators as
time goes on, Geithner said, adding that alternatives to the levy would
be less effective in providing a “disincentive” to risk taking and might
even pose greater risks.

One lawmaker aired the concern that the bank tax and new capital
rules being proposed would place U.S. banks on a weaker footing compared
to international competitors, but Geithner said the government is
working to make sure, “We are pulling the world towards a same approach
on capital.”

Geithner was quizzed by two Republican senators as to why the
President moved up the announcement of the bank levy, when the
legislation says the government need not propose how to recoup TARP
costs until 2013.

Geithner said the administration felt it was necessary in order to
address the uncertainty running throughout the country.

The administration, he said, “thought it was responsible to unveil
the fee at a time when people are looking to signals from our country
that we have the political will to start to bring down our deficits to a
more sustainable position.”

In light of the considerable amount of damage the financial crisis
caused to the U.S.’s long term fiscal position, “we thought it was
responsible fiscal policy for the country to make it clear now that we
are proposing a way to help dig out of this mess and make a substantial
contribution to offsetting the fiscal costs of this crisis.”

The proposed fee also adds credibility to the belief that banks
should pay for the costs of bank failures, Geithner continued, and helps
reinforce the broad reforms designed to limit risk taking in the
financial system.

“We think its responsible to propose a way now to start to dig our
way out of this hole … caused by the crisis,” he said.

He acknowledged, however that when the levy is imposed, “it’s not
going to seem fair to everyone, it is not the perfect approach,”

** Market News International Washington Bureau: 202-371-2121 **

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