Whither the bank tax?
Remember the Financial Crisis Responsibility Fee? It seemed like a great idea at the time, raising money for Treasury while at the same time acting as something of a too-big-to-fail tax which would help give banks a disincentive to grow too big or to move away from a stable deposit-based funding base.
But the stated purpose of the bank tax was to repay TARP — and now it seems that the TARP shortfall is going to be less than $30 billion. So it’s both politically and rhetorically hard to get it passed right now. Jim Pethokoukis reports that “it wasn’t included in the summer’s financial reform bill for fear of scaring away Republican support,” but says that it might yet be resuscitated as a way of making up the government’s losses on Fannie and Freddie.
For the time being, however — and for the foreseeable future through the rest of Obama’s first term in office — the bank tax seems to be dead, even as similar taxes in Europe have never been more popular. It’s yet another sign of how European and American attitudes towards the banking sector are diverging: while the Americans took a hard line in the regulatory negotiations in Basel, they’re much less keen on bank-specific taxes. The Europeans tend to move the other way, towards laxer regulation and higher taxes. In a world where financial services are borderless and globalized, that divergence is little more than a recipe for regulatory arbitrage.