During the debate over the Dodd-Frank financial reform law, Democrats proposed taxing the nation’s biggest banks in order to to build up a fund that would be tapped in the event a mega-bank failed, which would allow the government to take apart a failing firm without using taxpayer dollars. Republicans objected to the fee and ultimately forced it to be stripped from the bill. The GOP also opposed and killed a bank tax that would have been used to pay for the law’s implementation.
As if that wasn’t enough, the Obama administration has repeatedly called for placing a tax on the biggest banks (which it has named the Financial Crisis Responsibility Fee); Republicans have steadfastly refused to consider it. But last night, former Gov. Jon Huntsman (R-UT) endorsed just that idea during the Republican presidential primary debate, accurately explaining that placing a tax on the biggest banks would be a way to limit their out-of-control growth:
HUNTSMAN: With respect to the banks that are too-big-to-fail, you know today we’ve got, as I mentioned earlier, six institutions that are equal to 60, 65 percent of our GDP, $9.4 trillion. They have an implied guarantee by the taxpayers that they’ll be protected. That’s not right, that’s not fair for the taxpayers.
Q: So do you break them up?
HUNTSMAN: I say we need to right-size them. [...]
Q: How would you accomplish that? How would you right-size them?
HUNTSMAN: I think we ought to set up some sort of fund. I think we ought to charge some sort of fee from the banks. That mitigates the risk that otherwise the taxpayers are carrying. There’s got to be something that takes the risk from the taxpayers off the table so that these institutions don’t go forward with this implied assumption that we’re going to bail them out at the end of the day.
Huntsman is absolutely right that a fee would help limit the growth of the biggest banks, assuming that the fee grew heftier as a bank accumulated more assets. Such a fee would also help level the playing field between large and small institutions, negating some of the advantages in access to funding that a large bank has. The Congressional Budget Office has said that a bank tax would “improve the competitive position of small- and medium-size banks, probably leading to some increase in their share of the loan market.”
Huntsman has already proposed returning to “the spirit of Glass-Steagall,” the New Deal era regulation that prevented banks from merging traditional commercial banking with investment banking. The bank fee is just one more idea showing that he at least seems legitimately concerned with reining in the power of the nation’s largest financial institutions.