Bank Levy Dropped From US Reform Bill

by Glen Shapiro, LawAndTax-News.com, New York

05 July 2010

The bank levy, which had been proposed in the bill to introduce substantial reforms to the United States financial system, has had to be withdrawn.

Apart from the section of the bill providing increased consumer financial protection, its important changes include: a restriction on US banks’ ability to trade derivatives and to take risks by trading on their own accounts; powers given to regulators to wind up failed institutions; stricter controls through a new regulatory body; and action on bankers’ remuneration.

A committee from both the House of Representatives and the Senate had finalized the terms of the bill at the end of last month, prior to its re-presentation to both sides of Congress for their final approval. It had been hoped that the bill could be approved and sent to President Obama by July 4.

However, during further discussions, it became apparent that the bill would not be approved, particularly by the Senate, unless the USD19bn levy on banks with more than USD50bn, and on hedge funds with more than USD10bn, in assets, which had been introduced into the bill at the last minute, was withdrawn.

The levy had been included in the bill to pre-fund the costs of the reforms. It has now been decided that those costs can be covered, partly by ending the Troubled Asset Relief Program, which had been constituted late in 2008 to cover bank bailouts, and partly by increasing the premium rates paid by larger banks to the Federal Deposit Insurance Corporation to insure bank deposits.

With that change, the revised bill passed through the House of Representatives on June 30. It is now thought, however, that it will not be taken in the Senate before the middle of this month, to allow time for its review by Republican Senators.

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