Geithner: Banks should bear bailout burden

By Ben Rooney, staff reporter


NEW YORK (CNNMoney.com) -- Treasury Secretary Tim Geithner told lawmakers Tuesday that a proposed bank fee could help stabilize the financial system and recoup bailout costs by targeting banks that engage in more risky behavior.

In testimony before the Senate Finance Committee, Geithner said the Financial Crisis Responsibility Fee, proposed by President Obama in January, could raise about $90 billion over 10 years.

The goal of the fee, he said, "is to make sure that the direct costs of TARP are paid for by the major financial institutions, not by the taxpayer."

Geithner said the fee would impact banks that have over $50 billion in assets and were eligible for emergency assistance programs, such as the Troubled Asset Relief Program, or TARP, during the financial crisis of 2008. He said over 99% of banks would be excluded from the paying the assessment.

Under the proposal, banks that take more risk would be charged more than banks that are managed more conservatively.

"This framework has the significant benefit of including derivatives and off-balance sheet items not otherwise reflected under conventional accounting," Geithner said. "In this way, the fee targets, and thereby would help discourage, activities that pose the most risk to the stability of the financial system.

However, Geithner stressed that the fee is not a substitute for more comprehensive financial reform proposals being debated in Congress. Among the new regulations under consideration are higher capital and reserve requirements for banks, and giving regulators the power to shut down big banks that pose a risk to the overall economy.

The committee also heard testimony from representatives of the American Bankers Association (ABA) and the Financial Services Roundtable, among others, who oppose the fee.

"The implications of this tax do not stop with the largest banks," said James Chessen, chief economist at the ABA, in prepared remarks. "In fact, the costs and consequences will ripple through the financial services system, imposing costs on all banks and their customers."

The banking industry says the proposed fee unfairly applies to institutions that did not take TARP money and could put U.S. banks at a disadvantage to overseas rivals. Critics also say the fee will hurt small businesses by raising the cost of lending across the industry.

Supporters argue that the fee only applies to the nation's largest financial institutions, while smaller banks that provide the bulk of small business lending are exempt. In addition, proponents say banks that try to pass the fee on to customers will lose business to smaller rivals, which will boost small business lending.

Opponents also say the fee excludes some major TARP recipients, including the government-sponsored lenders Fannie Mae and Freddie Mac, and automakers General Motors and Chrysler.

Geithner said he expects the government to recoup "a substantial fraction" of the money allocated to American International Group (AIG, Fortune 500) and the automakers, which he said are going through "wrenching" restructuring. But he stopped short of saying the fee should apply to Fannie and Freddie, given the still weak housing market.

He said the Treasury Department is working with finance officials in Europe and the United Kingdom to "ensure a level playing field," adding that his international counterparts are considering a similar fee.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 16,514.37 65.12 0.40%
Nasdaq 4,161.46 39.91 0.97%
S&P 500 1,879.55 7.66 0.41%
Treasuries 2.70 -0.03 -1.14%
Data as of 8:48am ET
Company Price Change % Change
Bank of America Corp... 16.29 0.20 1.24%
Facebook Inc 63.03 1.79 2.92%
Micron Technology In... 26.18 0.86 3.40%
Comcast Corp 50.83 0.95 1.90%
Allergan Inc 163.65 21.62 15.23%
Data as of Apr 22
Sponsors

Sections

Alibaba's shopping sites account for 80% of online retail in China. Meet four successful merchants. More

The IRS is in damage control mode Tuesday after an audit revealed that it paid bonuses to employees who were in trouble over tax issues themselves. More

Upstart Aereo goes before Supreme Court justices in challenge by broadcasters who say TV streaming services violates copyrights. More

Schwinn, Trek and Cannondale are all iconic American bicycle brands. But none of them are made in the United States. More

Student loan borrowers are suddenly being thrown into default when the co-signer on their loan -- often a parent or grandparent -- dies or files for bankruptcy. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.