Yesterday, the Treasury Department announced that it is preparing to offload part of its share in Citigroup, earning more than $7 billion in profits on taxpayers’ investment in the failed financial behemoth. The fact that the money pumped into Citi will not ultimately result in a loss has led the financial services industry to restart its fight against a bank tax, using the argument that profits from the Troubled Asset Relief Program (TARP) render the tax unnecessary:
‘Large banks are repaying TARP with a profit to the taxpayer – every penny is coming back,’ said Scott Talbott, senior vice president of government affairs at the Financial Services Roundtable. ‘The purpose of the bank tax was to ensure the taxpayers are repaid. The repayments with interest by large banks should eliminate the need for any bank tax.’
Talbott’s assertion makes it seem like ensuring that taxpayers make money from TARP is the sole purpose for a bank tax (and to be fair, the Obama administration initially sold the tax this way). But the bank tax is about more than that. It’s also meant to level the playing field between the largest “too big to fail” banks, account for the myriad guarantees that the banks received outside of TARP, and, depending on how it’s designed, build a fund to prevent taxpayer dollars from being tapped to unwind a failing financial firm.
Of course, to make it seem like TARP was the sole rescue program from which the banks benefited is nonsense. As the AP’s Stevenson Jacobs pointed out, “the banks benefited heavily from other subsidies, including the $182 billion bailout of AIG. Tens of billions of that money went to banks that had suffered losses with AIG, and the banks didn’t have to repay a penny.” They were also allowed access to cheap loans via the Fed’s discount window. No policy has been enacted to account for that support.
And nothing about Citi’s repayment fundamentally changes the fact that the bank is considered “too big to fail” and poses a systemic risk to the entire financial system. As Felix Salmon put it, “Citi is still too big to fail, and therefore still has an implicit government guarantee on top of all the explicit guarantees which are still floating around. The government might make a nominal profit on the sale of its stock, but that means effectively ignoring the enormous value of those guarantees to Citi, which is still the shakiest bank in America from a systemic-risk perspective.”
Talbott is essentially arguing that, so long as TARP is repaid in full, things can just go back to the way they were. But financial reform needs to both address the deficiencies that led to the last crisis and build a system that can better withstand the next crisis. The bank tax is a part of that.