UPDATE 4-Geithner seeks support for US bank bailout fee

* Geithner says bank levy will curb reckless lending

* Bank fee to be used only to replay bailouts, cut deficit

* Treasury hopes other countries will back bank fee

* Geithner: bank bailout costs to be under $100 billion
(Adds comment by Sen. Baucus, details)

By Glenn Somerville

WASHINGTON, May 4 (BestGrowthStock) – Big banks should be charged a
fee to fund future bailouts as it would make them less prone to
reckless lending, U.S. Treasury Secretary Timothy Geithner told
lawmakers on Tuesday as he sought support for the proposal.

The fee would be levied over 10 years and set at a level to
fully recover costs of the government’s Troubled Asset Relief
Program (TARP) put in place to stabilize the banking system at
the height of the financial crisis.

Funds would be used to pay down the swelling U.S. deficit.
The fee would not be a substitute for tougher capital standards
included in a push by President Barack Obama for the biggest
banking overhaul since the Great Depression.

“The fee is designed to complement efforts to improve the
stability of our financial system by providing modest
incentives against funding riskier activities with less stable
funding,” he told the Senate Finance Committee.

Geithner ran into skeptical questioning but not outright
opposition to taxing banks, which are among the least popular
industry groups among lawmakers.

The move to recoup bailout funds accompanies opinion polls
showing voters concerned about exploding federal budget
deficits after emergency spending to counter the effects of the
recession.

Neither a U.S. House of Representatives-passed financial
reform bill nor one now being considered by the full Senate
proposes a bank fee like the one the Obama administration
advocates, and chances of adding it in appear slim.

Senate Finance Committee Chairman Max Baucus told reporters
after Tuesday’s hearing that it was unlikely such a proposal
will be added because it would draw Republican opposition and
potentially stall the entire overhaul effort.

CAN STILL ADD FEE LATER

But as prospects fade for a proposal to create a
$50-billion fund, paid into by large financial firms to help
pay for liquidating them if necessary, chances may be improving
that such a fee could be added when the House and Senate bills
get to a conference.

There is widespread agreement among both Democrats and
Republicans that taxpayers should never again be put on the
hook for bailing out banks.

Geithner said the fee would restrain banks’ risk-taking by
making it more costly for them to take on big bets without
having the assets to repay any losses.

“The virtue of this design is … you can think of it as a
too-big-to-fail tax, a tax on leverage, a tax on risk, but its
purpose … is to meet the legal obligation under the law to
cover … (the state’s) losses,” Geithner said.

The charge could be kept in place past 10 years if
necessary to fully recover costs. It would complement broader
financial reform proposals now under consideration on the
Senate floor. The fee would apply only to the biggest
institutions — those with assets of $50 billion or more that
represent only about 1 percent of U.S. financial firms.

Proposals for a global bank levy ran into stiff resistance
at meetings of the International Monetary Fund and Group of 20
rich and developing nations last month. Geithner’s testimony
showed the U.S. administration is still pushing on with some
form of charge.

His appearance in the Senate comes amid a battle over
Democrats’ sweeping reworking of financial regulation.

He dodged questions about whether President Barack Obama
would veto any bill that would impose a bank tax but allow the
funds to be used for purposes other than paying down budget
deficits.

KEEP FEE TARGETED

“The president believes very strongly that the resources
raised from this fee should go to cover the TARP costs and
reduce the deficit. … That’s the president’s position, and he
strongly believes that,” Geithner said.

It was unclear how much of the $700-billion TARP program
would be needed to stabilize the financial system.

Estimates of TARP’s eventual cost to taxpayers have ranged
from $109 billion to $117 billion. Geithner said he thought
that in the end it will be “probably lower” than $100 billion.

“We anticipate that our fee would raise about $90 billion
over 10 years and believe that it should stay in place longer,
if necessary, to ensure that the cost of TARP is fully
recouped,” Geithner said.

He said Treasury was working with other governments that
were considering a similar fee but didn’t identify them.

The IMF proposed a coordinated global bank levy to pay for
future bailouts, but some governments, including Canada, were
vehemently opposed.

The Obama administration is pressing ahead with its own
plan, which Geithner said it is trying to design “in a way that
improves the chances that other governments will adopt similar
measures.”

Stock Research Tools

(Additional reporting by David Lawder, Mark Felsenthal,
Corbett Daly and Donna Smith; Editing by Andrew Hay and Padraic
Cassidy)

UPDATE 4-Geithner seeks support for US bank bailout fee