WASHINGTON — The Shadow Financial Regulatory Committee today outlined its opposition to the White House's proposed tax on large banks, calling it unfair and punitive.
The committee, a collection of academics and former regulators, said that big banks alone should not be forced to pay a tax, which would be used to recoup losses from the Troubled Asset Relief Program, because the program also propped up automakers and insurance firms.
Big banks are a political scapegoat and "might have been singled out because they are currently politically unpopular," wrote Robert Litan, senior fellow in economic studies at the Brookings Institution.
The committee argued that a tax to resolve outstanding TARP funds is premature because total costs remain unclear. Instead, policy makers should wait to make a fuller reckoning of costs because TARP does not need to be reimbursed until 2013.
The group also endorsed applying the current bankruptcy process to resolve systemically important institutions as a way to curtail future bailouts.
The "lack of bank resolution process hindered the ability to deal with financial distress at large complex financial institutions, as a result the need to address the resolution process has become a critical component of financial reform," said Robert Eisenbeis, chief monetary economist at Cumberland Advisors.
The committee proposed a revised bankruptcy process where creditors or regulators could opt to trigger a Chapter 11 reorganization proceeding or a non-voluntary Chapter 7 bankruptcy to deal with floundering financial firms. This process would be more transparent and predictable than the current administrative process used to resolve failed banks, said Kenneth Scott, Stanford Law professor and senior research fellow at the Hoover Institution.