Thursday, October 13, 2011

House Democratic Leaders Propose Revenue Raisers such as Risk-Based Fee on Hedge Funds to Deficit Reduction Committee

In a letter to the Co-Chairs of the Joint Select Committee on Deficit Reduction, Ranking Members of the House Standing Committees recommended a number of revenue raisers to the Committee, including a fee on certain securities firms and hedge funds. Rep. Barney Frank (D-Mass), Financial Services Committee Ranking Member, urged legislation imposing a risk-based fee on banks and securities firms with assets over $50 billion and hedge funds with assets greater than $10 billion. The Committee is charged by the Budget Control Act to produce deficit reduction legislation by November 23, 2011, which must be voted on by Congress without amendment by December 23. The letter was sent to Co-Chairs Senator Patty Murray (D-Wash) and Rep. Jeb Hensarling (R-TX).

The letter also proposed increasing the SIPC fund to from $2.5 billion to $10 billion to ensure that resources are available when a brokerage firm fails. The letter also proposing increasing the size of the SEC reserve fund to at least $1 billion by increasing the SEC’s M&A and securities registration fees. The Dodd-Frank Act created the SEC reserve fund and authorized deposits of up to $50 million a year from M&A and registration fees, but limited the balance of the fund to no more than $100 million. The SEC is currently authorized to spend up to $100 million from the fund without restriction. This proposal would restrict the use of the SEC reserve fund to only be used to respond to extraordinary market events, such as the flash crash, and to fund long-term IT infrastructure projects.

The Obama Administration wants the deficit reduction legislation produced by the Joint Select Committee on Deficit Reduction to include a Financial Crisis Responsibility Fee on the largest financial institutions to fully compensate taxpayers for the extraordinary support they provided to the financial sector through the Troubled Asset Relief Program (TARP). The fee will be restricted to financial firms with assets over $50 billion and will be imposed until all TARP costs have been recouped.