January 13, 2010
Risk Taxes on Banks
Posted by Erik Gerding

Following on Christine’s provocative posts on the proposed tax on banks, which might be keyed off their risk-taking not their profits, four more questions pop out:

1. Isn’t providing a check on excessive risk-taking what traditional banking law tools like capital requirements and risk-based deposit insurance premiums are supposed to do?

2. Is this supposed to supplant those traditional tools, or just be a “temporary” measure?

3. Does this tax send a message that there is an implied government guarantee of the taxed institutions? (wait, looking in the government outbox I see “message already sent, unable to recall”)

4. Isn’t this a particularly ill-starred moment in the recovery to devise a brand new tax on financial institutions, especially one not based on profits?

I’ll let macroeconomists weigh in on question 4. But sometimes we need to think a little more inside the box.

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