Geithner Says Bank-Tax Proposal Targets Firms Funding `Riskier' Activities

U.S. Treasury Secretary Timothy F. Geithner said a proposed bank tax would target big financial companies that use short-term funding to finance risky practices such as derivatives and off-balance sheet trading.

“We designed the fee so that it would fall most heavily on firms that fund riskier activities with less stable forms of funding,” Geithner said today in prepared testimony to the Senate Finance Committee.

The Obama administration has asked Congress to enact a “financial responsibility fee” to recoup the costs of the Troubled Asset Relief Program. The fee would raise $90 billion over 10 years and would stay in place until the government recovers all the costs of the bank rescue, Geithner said.

Banks and other financial companies with more than $50 billion in assets would pay the fee, based on a formula to measure assets, liabilities and risk. Firms engage in riskier trading would pay more than “more conservatively” managed firms, and 99 percent of U.S. banks would be excluded from the fee, he said.

The U.S. has endorsed an effort by the Group of 20 nations to have banks shoulder financial rescue costs after governments and central banks provided an estimated $11 trillion to institutions including Citigroup Inc., Royal Bank of Scotland Plc and American International Group Inc.

In meetings last month, Geithner sought to bridge the gap between European proposals to tap banks for revenue and Canadian opposition to a fee on banks that didn’t need help during the crisis.

In today’s testimony, Geithner said the U.S. would continue its efforts to forge an international consensus.

“We want to design the fee in a way that improves the chances that other governments will adopt similar measures,” Geithner said. He said the Obama administration also would work with Congress to find the best approach for the U.S. financial system.

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.net;

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