Fed Bank president suggests ‘risk tax’

Neither the Senate or House-passed legislation includes the type of tax Kocherlakota is proposing, although the House’s measure has a new risk-bases assessment on large banks and hedge funds, which would have “desirable incentive effects on targeted firms.” But he pointed out that because it only raises up to $150 billion, once the tax ends, the incentive to avoid risky behavior also ends. 

“Both bills significantly understate the extreme economic forces that lead to bailouts during financial crises,” he said. 

The Senate bill’s language is “laudable” but not “achievable” and “thinking that it is can lead to poor choices about the structure of financial regulation.”

“No legislation can completely eliminate bailouts. Any new financial regulatory structure must keep that in mind.” 

To read the full speech, click here.