Geithner questioned on $90bn bank tax

TIM GEITHNER, US Treasury secretary, faced tough questions about the Obama administration’s proposed $90 billion (€69.2 billion) bank tax yesterday, with one Republican senator accusing him of a “political stunt”.

The vitriolic anti-bank sentiment that flared up with last month’s fraud charges against Goldman Sachs failed to prevent senators at a congressional hearing from adopting a sceptical attitude to the proposed levy.

It was announced early this year by US president Barack Obama in one of two interventions to hit the financial industry – the other being the “Volcker rule” which would ban proprietary trading by banks.

The tax was given fresh support from International Monetary Fund proposals last month that an international levy could be placed on large banks to cover the costs to the taxpayer of their failure. Countries led by Canada have opposed any international tax.

Republican members of the Senate finance committee suggested that the administration had political motives for proposing the tax now, and would be better advised to wait and see the true cost of the troubled asset relief programme.

The $700 billion programme, which invested capital directly into large financial institutions to stabilise them at the height of the crisis, is expected to yield much lower losses for the taxpayer than initially expected. The law requires the administration to claw back the costs of the bailout by 2013.

Jim Bunning, a Republican senator from Kentucky, said the timing was “suspicious”. “Can you understand why this looks like a political stunt to distract the public? By waiting you would have known more.”

Mr Geithner said the primary purpose was to recoup a portion of the government’s direct and indirect support to the financial industry but the timing owed something to the financial regulatory reform under way in Congress and because it was fiscally responsible for banks to start paying to reduce the deficit. - (Copyright The Financial Times Limited 2010)