Across the pond, US President Barack Obama has just gone nuclear in his crackdown on Wall Street’s biggest banks: he’s drawn up plans for a ‘financial crisis responsibility fee’, which will squeeze the 50 biggest institutions in the US for a total of $90bn. With public anger towards bankers still simmering – and the appearance of Lloyd Blankfein and co before a Congress enquiry this week is unlikely to help on that front – it should go down well politically. And if Obama can carry it off, which is by no means inevitable, it could crank up the pressure for the likes of the UK to follow suit…
The new fee would be levied on banks with assets of more than $50bn, which means that it won’t affect local lenders and community banks. It’ll be apportioned according to size, regardless of whether the institution tapped the public purse for funding – the idea being that those with the deepest pockets will end up paying the most. The levy could apparently garner as much as $90bn over a ten-year period, which would be used to pay back most of the scheduled losses from TARP, the US government’s Troubled Asset Relief Program (and since the estimate of these losses has already been revised down once, it might cover the whole lot). ‘It is the least they could do,’ one unnamed official told the Times.
As that quote shows, this is an unashamedly populist move by the President – although given the extent of public anger, particularly now the banks seem to be back in rude health again, perhaps that’s justified. As officials have been quick to point out, banks were largely responsible for the excessive risk-taking that precipitated the financial crisis, so it’s not unreasonable to expect them to foot the bill for the clean-up job – particularly since recent events (on both sides of the Atlantic) have proved that they enjoy an implicit taxpayer guarantee if things go really badly wrong.
All of which is fairly uncontroversial. The only question, as always, is whether this is the best way of punishing them. The UK’s tax on bonuses also scored a few cheap political points for the Government, but seemed far too easy to avoid. With this levy, the bankers will argue that it’s not fair: it means that banks who didn’t need to tap the TARP, and flourished as a result, will end up paying more than some who did. Equally, those concerned are whinging that they’ve already paid back the money they borrowed, plus interest – while it’s actually the car companies and the likes of AIG that caused those huge losses.
Goldman Sachs boss Lloyd Blankfein’s aggressive display at the Congress enquiry yesterday won’t have won the industry any new friends. Nonetheless, Obama will still have a fight on his hands to make this happen. If he does, however, British banks will be worried they could be back in the firing line.
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