If you tax big banks, don't forget Fannie and Freddie

Article Highlights

  • Ways and Means Committee Chairman Dave Camp is proposing to tax all assets over $500 billion of big banks and other SIFIs.

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  • No one can honestly deny that Fannie and Freddie are systemically important.

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  • Whatever your views on the merits of an asset tax, if you are going to do it, it makes no sense to leave out Fannie and Freddie.

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Ways and Means Committee Chairman Dave Camp is proposing to tax all assets over $500 billion of big banks and other “systemically important financial institutions” (SIFIs).  Two giant, hyper-leveraged financial firms are remarkably absent from this proposal: Fannie Mae and Freddie Mac.

Whatever your views on the merits of an asset tax, if you are going to do it, it makes no sense to leave out Fannie and Freddie.  No one can honestly deny that Fannie and Freddie are systemically important:  this is not an issue about which reasonable people can disagree.  Their total assets are $3.3 trillion and $2 trillion, respectively.  Fannie is bigger than JPMorgan and Freddie is bigger than Citigroup.  They are both demonstrably “too big to fail” and too big to be left out of any asset tax, should there be one.

Fannie and Freddie would be automatically included in Chairman Camp’s proposal if the Financial Stability Oversight Council (FSOC) had taken the obvious step of designating them as SIFIs.  Why hasn’t it done this?  On the merits, they are without question SIFIs.  There is every substantive reason for them to be so designated, and no substantive reason for them not to be.

Of course, there might be political reasons.  Do the FSOC’s systemic risk decisions reflect mere politics?  This is a good test case of its intellectual and policy integrity.

Alex J. Pollock is a resident fellow at AEI.  He was President and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004.

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