LEX So it is time to take one for the team. The Obama administration plans to levy a tax over 10 years on 50 or so large financial institutions. But dressing this up as a just victory for the public purse is disingenuous – troubled asset relief programme bank investments are set to generate a profit for the US Treasury. Taxes of perhaps $90bn will cover losses in the automotive and insurance sectors, as well as housing market support programmes. Of course banks (along with everyone else) benefited from government action to combat the crisis and someone must pay. Ultimately, it is likely to be banks’ customers.
The “responsibility fee” will draw huge debate and is likely to change before enactment. But in its current formulation, levied on assets less tier one capital and domestic deposits, the tax’s structure is unfavourable for brokers, with their greater reliance on wholesale funding, and the likes of Citigroup, with a large uninsured deposit base overseas. True, as a percentage of overall earning power, the tax looks manageable – Morgan Stanley puts the yearly impact at between about 2 and 7 per cent of the largest US banks’ annualised third-quarter, pre-provision profit. But its precedent and longevity is unsettling. JPMorgan Chase boss Jamie Dimon reckons the US may face another crisis before this tax’s demise.
