–US Banking Group Continues To Voice Opposition; Bank Tax ‘Arbitrary’

By Yali N’Diaye

WASHINGTON (MNI) – The levy on large financial institutions
proposed by the government should be applied for more than 10 years if
necessary to recoup the cost of the TARP, U.S. Treasury Secretary
Timothy Geithner said Tuesday.

He also said the administration is designing the fee in such a way
that would allow foreign governments to adopt a similar approach.

That said, Geithner repeated such a fee would not be a substitute
for tighter capital and liquidity requirements.

“We anticipate that our fee would raise about $90 billion over 10
years, and believe it should stay in place longer, if necessary, to
ensure that the cost of TARP is fully recouped,” Geithner said in
testimony prepared for the Senate Finance Committee.

The Treasury secretary did not give new specifics about the way the
fee would be designed beyond what was already known: firms with more
than $50 billion in assets would have to pay a fixed percentage of their
assets adjusted for risk.

When introducing the proposal — called the Crisis Responsibility
Fee — in January, the government said it would go in effect on June 30
for “at least” 10 years and would raise up to $117 billion over 12 years
and $90 billion over the next 10 years.

The fee assessed on the large banks would be about 15 basis points
of covered liabilities per year, the proposal said in January.

While not saying exactly how many firms will be affected by the
fee, Geithner said “the fee excludes 99% of U.S. banks, which currently
provide the majority of small loans to businesses and farms across the
country.”

And as the government is refining the details of the fee, it is
working with foreign countries in order to lead them to adopt similar
measures.

“We are also working with governments around the world who are
considering similar efforts,” Geithner told lawmakers. “We will meet the
legal requirement to recoup TARP’s cost in a way that makes sense for
our country, but we want to design the fee in a way that improves the
chances that other governments will adopt similar measures.”

He noted that since the proposal was announced in January, “a
number of countries have expressed support for the approach embodied in
our proposal.”

Geithner made it clear the fee on large banks will only be one tool
to strengthen the stability of the financial system and is not a
substitute for stronger capital requirements.

“It is not a substitute for our proposals to put in place much more
conservative capital and liquidity requirements on large institutions,”
he warned. “And similarly, higher capital requirements cannot be a
substitute for a fee on risk by large institutions, because they would
not contribute resources to the taxpayer to cover the direct fiscal
coast of the crisis.”

The American Bankers Association Tuesday reiterated its opposition
to the proposed bank tax, arguing that such a proposal would affect both
large banks and community banks and ultimately impact borrowing costs
for bank customers.

Testifying before the Senate Finance Committee, ABA chief
economist, James Chessen warned not only would a bank tax be unfair,
it would also have serious unintended consequences such as reducing
credit availability and driving capital out of the banking industry.

“The bank tax is an arbitrary tax on institutions of a certain size
without regard to where the losses actually occurred,” he argued.

Chessen maintained the impact on credit from the current proposal
can mean as much as $1 trillion of loans not made over the next decade
and that investors react quickly to such possibilities, spurring them to
move money to other industries.

“The implications of this tax do not stop with the largest banks.
In fact, the costs and consequences will ripple through the financial
services system, imposing costs on all banks and their customers,” he
said.

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

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