It is a good thing for American banks that Berlin and Munich, Paris and Lyon, are not in the U.S. The French and Germans have decided to levy a bank tax. The purpose if it is to create a rainy day fund in the event that another credit crisis cause over-leveraged banks to fail.
The tax is in lieu, to some extent, of regulations that might restrict risky trading at large financial firms.
There is still a debate whether it is best to tax big banks to create a de facto bailout fund that might be tapped in the future in the event that a financial firm got into such trouble that it needed to be broken apart or to limit the proprietary trading seen as a risk to the deposits at companies with investment arms and commercial operations.
Congress may choose to do both a tax and trade limits, a belt and suspenders approach that would be a natural reaction to the credit crisis that was so severe that a $700 billion TARP fund had to be created to salvage the system.
But, a belt and suspenders approach is expensive. Banks that have to pay out shareholder money for “insurance” and cannot operate their highly profitable propriety trading operations are hardly worth investing in. That point has been made over and over, but the root problems and their best solutions remain elusive. And, as is often true in the case where there is not a ready solution, an inadequate one will have to do.
Douglas A. McIntyre
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