Banking levy will hit bank liabilities

Steve Dinneen
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THE LEVY proposed by the White House will tax a portion of Wall St banks’ liabilities.

President Obama could reap more than $100bn (£62bn) through the scheme, which he hopes will recoup losses incurred from the government funded bailout programme.

Liabilities will likely be calculated by subtracting a bank’s total equity and insured deposits from its assets so, in practice, the less capital a bank has to back up its investments, the more tax it will pay.

The administration is believed to have ruled out a tax on profits after a six month review and will instead focus on taxing risk-taking behaviour.

This would strike a chord with Democratic congressmen who have called for large firms to hold more capital against future losses.

The White House hopes this will have the added benefit of encouraging banks to exert more caution in their financial dealings.

The tax is thought to be a limited period measure that will cease after the $120bn losses from the $700bn Troubled Asset Relief Program bailout money have been collected.

Banks are not expected to bear the full brunt of the levy initially but will pay the cost over a period of time, believed to be around 10 years. Early indications suggest small institutions will be exempt.

The proposal would have to be authorised by the US congress before it is given the green light. Obama will include the plan in his upcoming budget.

It marks the latest in a range of proposed fees, penalties and constraints that could be forced upon Wall Street during the clean-up of the financial crisis.

The timing of the announcement takes advantage of the current mood of discontent in the US with public anger mounting at the prospect of large bonus rewards for bankers.