As I mentioned yesterday, the White House is working up to proposing a tax on certain banks that will recoup bailout losses.  These losses aren't traceable to the funds that were borrowed and repaid by these banks, but are more indirectly related to risky behavior engaged in to varying degrees by almost all banks.  Yesterday, the White House was said to be considering either a "risk tax" or a "profits tax."  It seems like the "risk tax" may be winning.

According to the WSJ, the White House will unveil tomorrow (I have heard at 11:45 a.m. EST) a "risk tax," or a tax on "liabilities."  Taxable liability will be calculated as assets minus equity and insured deposits.  I'm not an accountant, so I leave it to others to comment on whether that is a good or measurable definition of liabilities.  Again, smaller firms will probably be exempted.  As Erik asked earlier, if we want to disincentivize risky behavior by banks, isn't capital reserve requirements or increased deposit insurance better?

Well, it isn't better for the White House for two reasons:  First, neither increasing capital reserve requirements or premia for FDIC insurance or other types of insurance will pay down the budget deficit.  Second, these laws wouldn't soothe the savage beast of populist disgust at 2009 bank profits and the resulting bonuses.

One last comment.  When regulation is usually proposed, news articles include some response from the targets of the regulation.  However, I have seen little in the way of organized resistance from Wall Street.  Possibly Wall Street firms understand that they are not sympathetic speakers in the court of public opinion.  I have another theory, though.  I would not be surprised to learn that at least the larger banks are fine with the risk tax.  Perhaps in the swirl of various proposals to regulate Wall Street, this is the least frightening to the regulated.  We'll have to see the response tomorrow.

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