Barney Frank and the need for a risk-based bank fee
by Linda Beale
Barney Frank and the need for a risk-based bank fee
That post about the McCain-Paul environmental devastation and revenue decimation bill (somehow mistakenly given the label of a “jobs bill” by the misguided pair ) suggests the unprecedented extent to which our Congressional reps now believe they can use and abuse national resources for the benefit of crony capitalism.
At least there still seem to be some who are interested in directing their firepower at those who have caused the recession and job losses and whose activities could well cause further harm. Barney Frank has written a letter to the so-called ‘supercommittee’ asking that they include the risk-based bank fee assessible against ‘too big to fail’ banks as part of the deficit reduction package. See Letter. Given that the very existence of too big to fail banks implies that the government will again have to come to their aid, it seems entirely appropriate to have these banks pay into the Treasury to recognize the guarantee they are being provided. Further, banks have made good profits since the crisis because of their ability to borrow money extraordinarily cheaply from the Fed, and they have nonetheless continued to demand fairly steep returns for their lending and other activities. Having them return part of that largesse through a risk-based fee is a reasonable approach that should also help to discourage the excessive speculative risk-taking in which they engaged.
originally published at ataxingmatter
If we were to again separate depositor from investment banks; wouldn’t this be much less of an issue?
“a risk-based fee is a reasonable approach that should also help to discourage the excessive speculative risk-taking in which they engaged.”
The ability to, and reality of equityholders and investors *losing their money* is the inherent, natural way to accomplish this.
We further turned the system upside-down when we mitigated that principle and refused to purge the losses.
Linda,
“they have nonetheless continued to demand fairly steep returns for their lending and other activities.” — Citation please.
Wells Fargo, US Bancorp, PNC, BBT are run-rating at around 11% return on equity and these are some of the most profitable banks. JP Morgan just reported a 9% annualized ROE for third quarter. The other TBTF banks – Citi, BankAmerica, Goldman, Morgan Stanley, are all likely to post lower returns than that as they report earnings over the next few weeks.
These returns are below their cost of capital, which is one reason, among others, why so many banks are trading below book value. That’s hardly “good profits”.
“Given that the very existence of too big to fail banks implies that the government will again have to come to their aid,”
Correct me if I’m wrong, but I am of the understanding that Dodd-Frank expressly prohibits the government from coming to their aid. For example:
** “The law and the work of the FDIC and other regulators makes it very clear that too big to fail is now over,” said Deputy Treasury Secretary Neal Wolin.
** “I am glad that Moody’s recognizes that such large institutions are not ‘too big to fail’,” said Frank, the Democrat from Massachusetts who helped create the Wall Street reforms.
“** “Moody’s made clear it believes that the U.S. government is less likely to step in to save a troubled bank, and downgraded Bank of America, Wells Fargo and Citigroup.”
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Matthew, “If we were to again separate depositor from investment banks; wouldn’t this be much less of an issue?”
Lehman and Bear Stearns weren’t depository institutions. Nor was Countrywide, nor Merrill Lynch, nor AIG, nor Fannie, nor Freddie. Washington Mutual had no investment banking activity, nor did IndyMac.