Related: State of the Union Spoilers
Will it encourage banks to reduce risk? Maybe. Too much leverage — the amount banks borrow relative to their capital — helped cause the financial crisis. Big banks like Lehman Brothers bet the house — and lost.
The White House said the proposed bank tax would “make it more costly for the largest financial firms to finance their activities by borrowing heavily.”
The proposal said it would target liabilities, yet it’s unclear how that would work in practice. If Obama were to target all liabilities, banks could respond by simply making fewer loans.
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