US banks and hedge funds to pay surprise $19bn levy

25 June 2010

Banks and hedge funds in the US are to pay a surprise $19 billion levy following a vote by Congress members.

The measure is set to apply to banks with more than $50 billion in assets and hedge funds holding over $10 billion.

Firms will be taxed in proportion to the amount of assets they hold in order to raise the cash, which is being collected after the Congressional Budget Office estimated the taxpayer's liability to a sweeping bill of financial sector reform measures at $19 billion, reports the Financial Times.

A 16-hour conference of Congress members saw the proposals finalized, with the imposition of a proprietary trading ban on deposit-taking banks and new conflict of interest rules all agreed.

However, initial plans to restrict banks from investing in hedge funds have been watered down, with the rules now set to allow them to invest up to three per cent of their tier one capital in such investment vehicles.

A senior Wall Street executive said: "It is a victory for us because it gets away from this concept that we would have to spin off or sell most of these businesses."

Another issue on the table is a proposal to give the Securities and Exchange Commission (SEC) more funding while retaining congressional oversight of the regulator.

Richard Shelby, the senior Republican on the Senate banking committee, said: "Madoff, Stanford, Bear Stearns and Lehman may make a compelling case that the SEC needs more resources, but they also ought to make the case that the SEC ought not to go unmonitored."

Earlier this year, Mary Schapiro, the chairman of the SEC, told a hearing looking into the collapse of Lehman Brothers that the regulator didn't have "the staff, the resources, or quite honestly, in some ways, the mindset" to properly oversee the banking sector at the time.

By Gary Cooper

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