BU Now » too big to fail

Nations consider bank taxes

Dick Taffe — Thu, 01 Apr 2010 22:22:19 +0000

Germany is moving to adopt a new bank tax to cover the cost of possible future bailouts, and France is considering the same thing. Former Deputy Comptroller of the Currency Robert Bench, now a senior fellow at the BU Law School’s Morin Center for Banking and Financial Law, says perhaps the best way to protect the taxpayer against troubled financial companies is to keep the institutions out of trouble in the first place.

“Rather than tapping financial firms to create a government fund which always will be inadequate, perhaps require financial companies to put away significantly more of their earnings into ‘prudential reserves,’ making the institutions ‘too safe to fail.’”

Contact Robert Bench, 617-353-5428, bobbench@bu.edu

Dealing with TBTF institutions

Dick Taffe — Fri, 30 Oct 2009 19:17:39 +0000

Treasury Secretary Timothy Geithner is still trying to convince Congress to pass legislation to deal with “too big to fail” financial institutions before they get to the point of collapse. Law Professor Cornelius Hurley, director of the Morin Center for Banking and Financial Law and a former counsel to the Fed Board of Governors, says it’s about time.

“The answer to the ‘too big to fail’ high-wire act does not lie in removing the government’s capacity to cope with these institutions in a crisis. It lies in removing the financial incentives for becoming TBTF in the first instance.”

Contact Cornelius Hurley, 617-353-5427, ckhurley@bu.edu

Taxing to deal with “too big to fail” corporations

Dick Taffe — Thu, 07 May 2009 14:48:41 +0000

Law Professor Tamar Frankel, author of “Trust and Honesty: America’s Business Culture at a Crossroad,” says taxation is a reasonable tool to use to control corporations which are being given federal bailout money because they’ve become “too big to fail.”

“Many wonder and worry about the mammoth banks and corporations that became ‘too big to fail’ and are sucking the taxpayers’ money — yet do not have enough. How should the size of these corporations and future ones be controlled?

“In the name of efficiency we have eliminated enforcing antitrust laws and allowed corporate managers to increase their power by acquiring smaller corporations. We have specialized functional limits (e.g., investment banking separation from commercial banking). One possibility is to tax not the income but the assets of corporations above a certain size. But that has not been done before and is fraught with problems.

“The new administration has taken the better step of taxing corporations wherever they profit and escape U.S. taxation. Corporations will declare their income, pay taxes and hopefully shrink somewhat. Their share prices might fall, but they might also rise. Size does not mean efficiency or competitiveness. It does mean management and executive higher compensation.

“In light of the enormous handouts to these corporations and the national deficit which they have bestowed on us, taxing these entities may bring both the shareholders relief in an indirect way, and the country some relief in a very direct way.”

Contact Tamar Frankel, 617-353-3773, tfrankel@bu.edu