In an impromptu meeting the conference committee briefly opened back up the financial reform bill for debate Tuesday evening. In a session lasting just under two hours, the House and Senate agreed to pay for the new regulations differently. Initially, they sought to impose a $19 billion tax on big banks and hedge funds. Now, that cost will mostly be paid for with unspent bank bailout funds and a few billion dollars obtained through bigger bank assessments by the FDIC. In other words, taxpayers will bear the cost.
Conference reconvened due to the protests from centrists Republicans in the Senate who didn't like the idea of taxing the big banks and hedge funds. Instead, taxpayers will pay for the regulation, since any TARP money unspent was supposed to go towards paying down the deficit. Those billions of dollars that would have been wiped out of the deficit will now have to come from the American people. Any money from higher bank assessments will ultimately cost consumers too, since banks will just pass on the expense to them through higher fees.
These Republicans have made a very strange choice. They decided to lighten the load on big banks, some of which will now just have to pay slightly higher assessments. Meanwhile, investment banks -- like Goldman Sachs -- will virtually escape the expense entirely, since they have few deposits. Hedge funds avoid the cost completely. Even though a tax on big banks might have been an economically questionable decision, it's hard to see how pushing the tax to average Americans and smaller banks helps matters.
If these Republicans were really concerned about a tax, then they should have demanded spending cuts to fill the gap or scaled back some of the expensive regulation that the bill calls for. The only ones who benefit from this change are big banks and hedge funds. Taxpayers and community banks are indisputably worse off.