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Debate over Obama's proposed bank tax will be intense

January 15, 2010 | 11:26 am

As debate begins on whether to tax big banks and insurers for having created the financial crisis, a quick quiz may be of interest.

Who said the following?

"Let's be honest. This problem was caused by a total disregard by financial institutions' management of basic risk management fundamentals, even common sense, coupled with a serious lapse in ethical behavior. It was fueled by greed ..."

A. President Obama, proposing a "financial crisis responsibility fee" to repay government bailout efforts.

B. Center for Responsible Lending founder Martin Eakes, calling for lenders to write down the balance owed on deliquent mortgages. 

C. Former Wells Fargo & Co. Chief Executive Richard M. Kovacevich, addressing an "economic summit" at his alma mater, Stanford University.

D. Socialist Venezuelan President Hugo Chavez, ridiculing former President George W. Bush for investing in U.S. banks to prop up the financial system.

Before the answer, some reaction to and notes on the plan, which over about 12 years would seek to recover $113 billion -- the amount the government now expects to lose on disbursements from its Troubled Asset Relief Program, or TARP.

--- The levy would only apply to companies with at least $50 billion in assets, so smaller regional banks like City National Bank and East West Bank in Southern California would not have to pay.  

--- Dick Bove, a bank analyst at Rochdale Securities, called the plan "pure Chavez reasoning" along the lines of "evil capitalist banks created the financial crisis and they must be punished for doing so." Bove said the plan would reduce lending, make U.S. banks less competitive and would cause banks to raise fees. But he said investors should still buy bank stocks because as the economy improves, pretax earnings will soar.

--- Analysts at Keefe, Bruyette & Woods said 48 institutions had assets above the threshold of $50 billion, including nine U.S. subsidiaries of foreign financial firms. They said they expected intense debate over the proposal in Congress and that details would change before any bank tax is enacted.

--- RBC Capital Markets analysts compared Obama's proposal to the windfall profits tax on oil companies in the late 1970s. Like Bove, they said its potential effect should not be so great as to discourage investment in a recovering banking sector. The biggest reduction in earnings, at high-risk Wall Street firms, should be no more than 10%, they said.

--- It appeared that only three California banks, all based in San Francisco, would be affected. Based on third-quarter financial reports, Union Bank, owned by Mitsubishi UFJ Financial Group of Tokyo, looked as if it would have to pay about $18 million a year if the Obama proposal was unchanged. Bank of the West, a subsidiary of France's BNP Paribas, would owe about $36 million. And Wells Fargo could wind up owing $578 million -- perhaps more after factoring in the effect of the bank's recent capital raise and repayment of TARP funds.

As for the quote: the speaker was Dick Kovacevich of Wells Fargo, who said in a keynote address last March at Stanford that the greed of the banks was "unchecked by regulatory authorities, and reached an unprecedented scale due to the breakdown in previously reliable third-party safety valves, namely rating agencies."

--E. Scott Reckard

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